Whether you’re buying your first home, moving up to a bigger home, or downsizing, getting pre-approved for your next home purchase is a smart move. Not only does pre-approval give you an idea of what you can afford, it strengthens your buying position when it’s time to make an offer.

Let’s take a closer look at what pre-approval is, why it matters, and how to get pre-approved for your next home loan.

What Is Pre-Approval?

Pre-approval is your lender’s conditional commitment to lend you a specific amount of money for your new home. As your lender, we’ll take a look at your financial history and statements and check your credit score. We’ll use that information to determine how much you’ll be able to borrow when it’s time to apply for a home loan (which officially happens once your offer is accepted).

Why Pre-Approval Matters

Getting pre-approved for your home loan shows real estate agents and sellers that you’re serious and financially ready to buy. This is especially important in a seller’s market, where a pre-approval letter may help you nudge out other buyers who may not have their lender’s commitment.

Your pre-approval letter can help you narrow down your home search. Your pre-approval amount gives you a very good idea of how much you can afford and what your monthly payment will be. And because your paperwork is already in motion, a pre-approval letter can make the official loan application process go faster and more smoothly.

How to Get Pre-Approved for a Home Loan

So, how do you get pre-approved for your mortgage? The Lake Region Bank home lending team breaks it down into five simple steps.

Step 1: Check Your Credit Score

We use your credit score to evaluate your risk as borrower. The higher your score, the more likely you are to pay back your home loan on time. If your credit score is below 500, we suggest taking steps to raise it, such as paying down your current debt and correcting errors that may appear on your credit report.

Step 2: Gather Your Financial Documents

To complete the pre-approval process, we’ll need to take a look at several financial documents, including:

• Recent pay stubs
• W-2s or 1099s
• Tax returns for the last two years
• Bank statements
• Driver’s license

Gather these documents before you speak with your lender to streamline the pre-approval process.

Step 3: Choose a Lender

This is the easiest step! The friendly, helpful Lake Region Bank lending team is here to walk you through the home loan process and help you with your pre-approval. We offer conventional mortgages as well as FHA, VA, and USDA home loans and down payment assistance loans. Visit our home loan page to discover your options.

Step 4: Submit Your Pre-Approval Application

When you reach out to our team, we’ll ask you to complete our pre-approval application, either online, by phone or in person. We may ask you to provide us with the financial documents you’ve gathered. We’ll do a hard credit inquiry, which means we’ll request a copy of your credit report. While this can temporarily reduce your credit score by a few points, the inquiry is a necessary step in the home loan process.

We’ll also take a look at your debt-to-income ratio, which compares how much debt you owe each month to how much money you make each month. A ratio below 36 percent is generally considered good, however, you may have a ratio as high as 50 percent with other good compensating factors.

Step 5: Receive Your Pre-Approval Letter and Start House Hunting

If pre-approved, it’s time to officially start your house hunt. If your realtor asks for a pre-approval letter, one will be provided to you. It’s valid up to 120 days as long as there are no significant changes to your employment and financial situation.

Once your offer on your new home is accepted, let your lender know. We’ll get the loan application process rolling right away. Your application will go through underwriting, and once complete and approved, you’ll receive your closing date.

Bonus Tip: Don’t open any new credit accounts or make large purchases between your loan application and your closing date! Doing so can affect your credit score and jeopardize your loan approval.  Getting pre-approved for your home loan is a smart first step in your home buying journey. The Lake Region Bank lending team is here every step of the way to help you make sense of the process and streamline your home buying experience. For friendly, knowledgeable support, get in touch with our lenders today.