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Pre-Approval Rules for Homebuyers in 2022

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The Times They Are-A Changing

You may have heard it’s important to get pre-approved for a mortgage at the beginning of the homebuying process, but what does that really mean? Why is pre-approval so important? In today’s market, with rising home prices and high buyer competition, it’s crucial to have a pre-approval letter prior to making an offer. Here’s why.

Being intentional and competitive are musts when buying a home this year. Pre-approval from a lender is the only way to know your true price range and how much money you can borrow for your loan. Just as important, being able to present a pre-approval letter shows sellers you’re a qualified buyer, something that can really help you land your dream home.

This is especially true in today’s hot seller’s market. Inventory was scarce last year and will be this year too. With limited housing inventory, there are many more buyers active in the market than there are sellers, and that’s creating some serious competition. According to the National Association of Realtors (NAR), homes today are receiving an average of 3.8 offers for sellers to consider. As a result, bidding wars are still common. Pre-approval gives you an advantage if you get into a multiple-offer scenario, and these days, it’s likely you will. Getting pre-approved gives you a leg-up on your competition. When a seller knows you’re a serious buyer and qualified to buy the home, you’re in a better position to potentially win the bidding war.


Freddie Mac explains:

“By having a pre-approval letter from your lender, you’re telling the seller that you’re a serious buyer, and you’ve been pre-approved for a mortgage by your lender for a specific dollar amount. In a true bidding war, your offer will likely get dropped if you don’t already have one.”


 Another reason to get pre-approved: home sellers often insist on it. Look at it from their point of view: no one wants to vacate their home for an hour or so for a house showing if someone isn’t a serious, qualified buyer. That’s why many real estate agents won’t allow homebuyers to tour their listing without a pre-approval letter from a reputable mortgage lender.

How to Get a Mortgage Pre-Approval

Start by determining who you want your lender to be. You can get a mortgage pre-approval from up to three different potential lenders, and it’s a good idea to do so, since it will allow you to compare rates and select the option with the most optimal lending terms.

In order to provide you with a pre-approval, each lender will need some specific information in regards to your finances:

  • Personal information. Have your social security number ready, as well as proof of identity. Lenders will use this information to run a credit check. If you’ve recently changed your name, you’ll want to supplement your proof of identity with additional proof, such as a marriage license or divorce certificate. The credit check is necessary, since it will give lenders insight into your debt to income ratio, as well as your financial history. Note: if you’ve locked your credit accounts for security with the major credit bureaus – Equifax, TransUnion and Experian – you’ll need to unlock them prior to running the credit check.
  • Income information. Lenders are going to need proof of your income for the past two years, including all W-2s and/or alternate tax information, pay stubs, and information related to other sources of income that you may have.
  • Asset information. Finally, you’ll need to provide any documentation related to assets outside of your income, including any large monetary gifts or investments. You may be required to provide a letter from anyone who is gifting you with substantial funds to put toward the purchase of your home.

Have this information ready to go ahead of time so that your mortgage pre-approval process goes as smoothly and quickly as possible. Once a lender has all of the documentation that they need, your application will go to an underwriter who will determine how large of a mortgage you qualify for. Altogether, the process can take anywhere from a few days to a few weeks, depending on who you’re working with.

A mortgage pre-approval is usually valid for anywhere from 60 to 90 days. For many buyers, this is enough time in which to search for and make an offer on a home. If you do happen to extend the buying process beyond the pre-approval period however, you’ll need to speak with your lender and find out what you need to do to reapply.

As a general rule of thumb, don’t make any big changes to your finances in between getting your mortgage pre-approval and buying your new home. Making another major purchase or taking on alternate debt will likely invalidate your existing pre-approval amount and require you to start over.

Teamwork Matters

Every step you can take to gain an advantage as a buyer is crucial when today’s market is constantly changing. Interest rates are rising, prices are going up, and lending institutions are regularly updating their standards. You’re going to need guidance to navigate these waters, so it’s important to have a team of professionals such as a loan officer and a trusted real estate advisor making sure you take the right steps and can show your qualifications as a buyer when you find a home to purchase.

Bottom Line

In a competitive market with low inventory, a pre-approval letter is a game-changing piece of the homebuying process. Not only does being pre-approved bring clarity to your homebuying budget, but it shows sellers how serious you are about purchasing a home.





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About The Author
Regina Acosta Tobin

Based in the German Village area of Columbus, Regina Acosta Tobin is a full-time Realtor/Broker who has helped residential buyers and sellers since 2005.