Mortgage pre-approval is needed in order to make an Offer in our area. Anyone without one appears disorganized, at best, and is likely to be written off by a seller as not worthy of consideration, at worst. The first question from a seller or seller’s agent about an offer is “How much?” The second is either “Are they pre-approved?” or “Can they close on our date?”
The lender is interested in your income at the time of the loan. Federal lending regulations require that a mortgage lender document that you have enough income to pay for the mortgage you are applying for.
- If you are on a payroll, in a salaried position, they’ll need a month of pay stubs to support your income. If you are self-employed, your income is the average of the past two years.
- If you get commissions or bonuses, you will need to show that you will continue to get them, if those funds are counted as your income to qualify for the loan.
- If there is a big difference in income from year to year, you will need to document why the lower amount is not the norm.
Credit scores and mortgage pre-approval:
Your credit score at the time you apply matters. Your lender will check your credit score as part of the pre-approval and will do it again just before closing.
Every time you apply for pre-approval, that credit check is noted by the credit scoring agencies. In the first month, there will be one “ding” on your credit score for that credit check. It counts as one ding for the first month, even if you apply to multiple lenders. But the next month, you will get dinged for the additional credit checks you did.
If your credit score is on the low side, get advice before pre-approving at multiple lenders. The credit score ding is small the first time. Recently, a client of ours did three credit checks with three lenders and lost 30 points on their credit scores. (Credit bureau algorithms are a moving target.)
There is no other down-side to applying for a mortgage pre-approval when you decide to start house-hunting. Worst case is that you waste a few hours collecting paperwork for the lenders. The upside is that if you find what you want, you’ll be a position to buy it.
Also, you will find out how the process works. This will reduce stress if you come back some time later to do it again. The lenders do not keep track of previous applications and credit scores as a reference point for a current loan application.