Before you begin the homebuying process, you should get pre-approved for a loan. Most Realtors require people to be pre-approved before they start showing homes to buyers. They want to make sure that buyers qualify for the loan. If you are not pre-approved, your Realtor should recommend you visit a mortgage advisor.
This highlights an issue that often happens early in the home buying process — namely, people don’t talk to their mortgage advisor early enough. Some people have a few issues in their financial past that can cause snags when it comes to financing a home loan. It’s best to start the process early. How early? If you want to buy a house in the summer, we recommend you visit a mortgage advisor in January.
Four Main Types of Mortgage Lenders
Before we delve into the details of preapproval, it is worth taking a moment to understand the different types of mortgage lenders. They are:
- Bank and mortgage bankers – banks and mortgage bankers might be great to work with if you have a banking institution that holds all of your checking and savings accounts and any car or personal loans. You have a relationship with them and due to that your loan process might be smoother. However, they often only offer their own programs and don’t offer government lending options such as FHA, VA, or USDA loans.
- Credit unions – similar to banks, credit unions only offer loans to their members. They have their own programs for members with attractive interest rates and terms. They usually don’t offer government loans.
- Mortgage brokers – mortgage brokers work with different types of mortgage lenders. They shop around all of the mortgage companies and loan options out there. However, with this type of mortgage company, they do not have control over the process, approval time, and loans can take longer and may not be as smooth as working directly with a mortgage lender.
- Mortgage lenders – mortgage lenders have a singular purpose, to create real estate loans. Unlike a bank or credit union, they are not involved in other banking aspects. Mortgage lenders work with a variety of programs on the market to find you the best loan option. They often run the whole mortgage process in-house which shortens approval and processing time. McLean Mortgage Corporation is a mortgage lender.
As you can see, there are many options. We can not stress enough that you need to find a mortgage lender you trust. Interviewing a few different companies or visiting with mortgage companies that others refer you to would be a great place to start.
You may wonder:
- Why do you need to be preapproved for a loan?
- What is different about the preapproval versus the final approval?
These are great questions … let’s get you some answers.
- What is preapproval versus final approval? Lenders start with a preapproval. This is an overview process that takes a look at your six primary documents provided (see the list above [link to the list of documents]) and helps them come up with a risk assessment. According to that snapshot in time, you will receive a preapproval letter giving you a green flag toward looking for homes and writing a purchase contract.
- The preapproval tells the Realtor that if you find a house and want to purchase it, it is very likely the loan would be approved based on today’s information. During the preapproval process, a mortgage advisor will verify financial information and take all the steps necessary to get you as close as possible to approval for a loan.
- The final approval could be quite different depending on the timeframe from preapproval to the accepted contract. The final approval will look at what’s happening in your finances at the time of the accepted contract. If you’ve paid down a large amount of debt or increased your debt to income ratio, your final approval could be compromised. We dive into a lot of details about credit in our page called All About Credit. If nothing major changed from the time of preapproval to the time of your final approval, your loan should be approved.
- Why do you have to go through a mortgage approval process? Mortgage lenders of every kind, from banks to credit unions, to an independent lender like McLean Mortgage, work with the U.S. government through the Consumer Financial Protection Bureau (CFPB). The CFPB makes sure that financial institutions treat borrowers fairly. Lenders want to treat you fairly, but they also need to make sure they are protected. That is why you must go through an approval process before receiving funding. The process protects you and them from bad loan practices.
- How long does it take to get pre-approved? The preapproval process with a mortgage lender can take a couple of days to a week. This process is a lot shorter when you have your documents in order [link to the documents].
- What is a loan pre-qualification? There are online services you can use to get a “pre-qualification” letter. A pre-qualification is just an estimate of your ability to pay back a loan. In most cases, your finances and credit are not verified, but there is also no guarantee you will be approved for a loan once you find a house you want to purchase. It is not the same as a preapproval where your finances are verified. So, go for the preapproval, not just a pre-qualification.
- How long does the preapproval last? Once you are pre-approved, your preapproval letter will last about 90 days. However, don’t fret if you don’t find a house during that time frame. Receiving another letter from your mortgage advisor is as easy as having them verify your income, credit, assets, and liabilities again.
- What is the typical timeframe for the final approval? Your final loan approval can take anywhere from 2 weeks to 30 days.
Our Process and You
When you choose McLean Mortgage as your mortgage advisor, you are not just working with a single mortgage advisor. You have the whole McLean Mortgage family helping support you through the mortgage process. We will help you evaluate your finances, your credit, and advise you every step of the way on your journey to get you approved for a mortgage.
The McLean Mortgage Process is designed to be simple for you.
The only steps you need to complete are filling out the application and sending in any missing documentation as soon as possible. Otherwise, we handle the rest for you. The most important thing for you to know is that the more complete your application is, the smoother the entire process will be!
You can read more about our process in our Loan Approval Guide.
You do need a few items readily available before you start contacting lenders about a mortgage. Having these things up front will make the process easier and less stressful.
You’ll want to collect six primary documents. Expand the list below to view them, or print out our PDF for quick reference.
It would be good to have this handy, but it’s ok if you don’t have a copy, the lender can request one on your behalf. Just be aware, you’ll need to sign a form for them to do so.
You receive a W2 form from your employer each year around tax time. You should have two of the most recent handy for this process. If you don’t have a W2 because you are self-employed or work cash jobs, proof of direct deposits or cash deposits will suffice.
You may not have all of these. Still, your mortgage advisor will want to see what you do have to help you with the best plan for funding.
You may be receiving gift funds from a friend or family member to purchase your house. In that case, you will need a letter explaining where the funds came from and what the relationship is between the donor and the receiver.
Yes, you need to prove you are who you say you are. A current driver’s license or legal ID card, visa, or passport will work.
You may be asked to prove you paid rent for the past year. This can come in the form of canceled checks, check duplicate copies, or your landlord providing documented payment history.
Once you have your paperwork in order, your mortgage advisor can begin the preapproval process. The lender will pull a specific type of credit report for mortgages (read more about credit reports), which is different from a consumer report that you could request on your own. You may need to explain any credit blemishes to your mortgage lender so they can determine if there are any errors, or help you plan ways to improve your credit score.