Purchasing your first home is an undoubtedly exciting time. But entering the real estate market can also be intimidating, especially when inventory is limited. One thing that might give you a little more confidence, and potentially a slight advantage over other prospective buyers, is mortgage pre-approval.
What does this mean, how does it benefit you, and what do you need to get it? Find answers from our Oregon community credit union below.
What does it mean to be pre-approved for a mortgage?
With the exception of cash offers, all potential homebuyers have to show documentation proving their income, assets, employment, and creditworthiness for a mortgage loan. Pre-approval means a lender has evaluated your financial situation and determined that they will allow you to borrow a specified amount to purchase a home.
Pre-qualification vs. pre-approval
Keep in mind that a pre-qualification letter isn't the same as a pre-approval letter. While both provide lending estimates from lenders, pre-qualification mostly tells you how much you can afford and doesn't usually involve a credit check. If you're beginning the home-buying process and thinking about homes you can afford, getting pre-qualified is a good idea.
Pre-approval, on the other hand, is a bit more valuable. In addition to telling buyers how much they can borrow, it essentially means the lender will move forward with a mortgage loan once you make an offer. If you know you’re ready to buy, you can skip pre-qualification and go straight to pre-approval.
What you need for mortgage pre-approval
It varies slightly among lenders, but there are a few things you'll need to get a pre-approval letter. This includes:
- Proof of income
- Proof of assets
- Employment verification
- Good credit
Good credit generally means your credit score is at least 620, though some lenders might approve borrowers with scores as low as 580.
Benefits of a pre-approved loan when buying a home
There are many benefits to having a pre-approval letter, including knowing what you can afford, the potential for more home showings, and added confidence for home sellers.
Knowing what you can afford
A mortgage pre-approval letter tells you how much you can borrow when buying a house (aka your estimated loan amount). Add this number to your down payment to figure out what you can afford.
For instance, if your estimated loan amount is $400,000 and you have $20,000 saved for a down payment, you can afford a house that costs up to $420,000. This will help you filter through listings and avoid touring homes outside your price range.
Potentially more/faster showings
In particularly hot markets, sellers may be less willing to show their homes to interested parties that don't have a pre-approval letter from the last 90 days. In addition to more showings, you might also get access to earlier timeslots which could help you beat other offers.
Seller confidence
Simply put, sellers want the offers on their homes to go through. Understandably, they might be wary about buyers that haven't proven their creditworthiness for a loan, and a pre-approval letter can give them more confidence in your offer.
Home-buying resources from our Oregon credit union
In addition to home loans with low interest rates and flexible terms, Consolidated Community Credit Union offers a range of mortgage resources. This includes a mortgage calculator for estimating your monthly payment, a network of trusted realtors, and assistance with closing your loan. Members can also set up first-time homebuyer savings accounts and deduct up to $5,000 in taxes for each filer.
CCCU serves members who live, work, worship, own a business, or attend school in Multnomah, Clark, Washington, Hood River, Clackamas, Yamhill, Columbia, and Skamania counties, or are a relative of a current member. Our Oregon credit union has three physical branches in Portland and one in Hood River, convenient mobile banking, plus access to 5,600+ CO-OP Shared Branches and over 30,000 surcharge-free CO-OP ATMs nationwide. Join us today!
