I Have Been Pre-Approved for a Mortgage, Now What?

Mortgage pre-approval represents a lender’s preliminary commitment to finance a home purchase. This step involves an initial review of an applicant’s financial standing, including their credit history, income, debt, and assets. Securing a pre-approval provides a clear understanding of the maximum loan amount one qualifies for, offering a defined budget for the home search. It serves as a valuable tool in the competitive real estate market, signaling to sellers that a potential buyer is serious and financially capable.

Using Your Pre-Approval in the Home Search

A mortgage pre-approval confirms the approximate amount a lender is willing to extend, establishing a budget for home shopping. This allows individuals to focus their search on properties within a comfortable financial range. While pre-approval indicates borrowing capacity, consider personal comfort with potential monthly payments, including principal, interest, taxes, and insurance, to ensure long-term affordability.

Sharing the pre-approval letter with a real estate agent is a standard practice that streamlines the home search process. Agents can then tailor property listings to fit the confirmed budget, efficiently guiding buyers to suitable options. This collaborative approach ensures that the properties viewed align with financial realities, making the search more effective.

The pre-approval clarifies the financial parameters for a home, aiding in the definition of specific home criteria. Knowing the feasible price range helps buyers narrow down preferences related to location, size, and features. This focus assists in making informed decisions about property characteristics that are both desirable and financially attainable.

Having a pre-approval positions buyers to act quickly when an ideal property becomes available. In dynamic housing markets, being able to present a pre-approval letter with an offer demonstrates readiness to close the transaction. This swift action can be a significant advantage, as sellers often prioritize offers from buyers who have already secured financing.

The Offer and Contract Phase

Crafting an offer involves components beyond the proposed purchase price. It includes an earnest money deposit, signaling a buyer’s commitment. This deposit typically ranges from 1% to 3% of the purchase price, though it can be higher in competitive markets, sometimes reaching 10%.

Contingencies are incorporated into an offer to protect the buyer’s interests. Common contingencies include a home inspection, allowing assessment of the property’s condition, and an appraisal contingency, ensuring the property’s value supports the loan. A financing contingency is also standard, making the purchase dependent on the buyer securing the mortgage.

Upon the seller’s acceptance, the offer transitions into a legally binding purchase agreement, also known as a sales contract. This document outlines all terms and conditions of the sale, including the price, contingencies, and closing date. Both the buyer and seller sign this agreement, solidifying their commitment to the transaction.

Real estate agents play a central role in this phase, assisting with offer preparation, negotiation, and ensuring the contract terms are clear. In some cases, a real estate attorney might also be involved, reviewing the purchase agreement to safeguard the buyer’s legal interests. Their expertise helps navigate the complexities of contractual obligations.

The Mortgage Application and Underwriting Process

Preparatory – Required Documentation

After an offer is accepted, mortgage pre-approval transitions into a formal loan application, requiring documentation. Lenders need income verification, which includes pay stubs from the most recent 30 to 60 days and W-2 forms for the past two years. For self-employed individuals, tax returns from the last two years, including Schedule C or Schedule E, and profit and loss statements are required.

Asset statements are necessary to confirm funds for the down payment and closing costs. This involves providing statements for checking and savings accounts for the most recent two months, along with statements for investment and retirement accounts. Lenders verify that these funds are “seasoned,” meaning they have been in the account for at least 60 days, and may require explanation for large, non-payroll deposits exceeding 50% of monthly gross income.

Procedural – Completing the Loan Application

Gathering and compiling financial information and documents involves organizing pay stubs, W-2s, tax returns, and bank statements. Ensure all pages are included and legibly scanned or provided digitally. These documents provide the factual basis for the information entered into the formal loan application form.

The formal loan application requires entering details from these documents into specific fields, such as income figures, asset balances, and employment history. It also requires providing identifying information like a photo ID and Social Security number. Ensuring accuracy and completeness during this data entry phase is important for a smooth review process.

Procedural – Submission and Underwriting

Once the application package is submitted, it enters the underwriting phase. Underwriters review all provided documentation to assess the borrower’s creditworthiness and the overall risk of the loan. They verify income, employment history, assets, and debts to confirm the borrower’s ability to repay the mortgage.

During this review, underwriters may request additional documents or clarifications if discrepancies or questions arise. This communication ensures all criteria are met before approval. The initial underwriting review can range from a few business days to over a week, depending on the complexity of the application and responsiveness to requests.

Procedural – Appraisal and Title

As part of the underwriting process, an independent appraisal of the property is ordered. The appraiser evaluates the home’s value to ensure it aligns with the proposed loan amount, protecting both the lender and the buyer. If the appraisal comes in lower than the agreed-upon purchase price, it may necessitate renegotiating the price with the seller, increasing the down payment, or terminating the contract if a contingency allows.

A title search is conducted to confirm clear ownership of the property and identify any liens or encumbrances that could affect the transfer of title. This process ensures the seller has the legal right to sell and the buyer will receive a clean title. Title insurance is then issued to protect the buyer and lender against future claims on the property’s title.

Procedural – Loan Approval Status

The underwriting process culminates in a loan approval status. Initially, a conditional approval may be issued, indicating the loan is approved pending certain remaining conditions. These conditions often involve submitting updated documents, resolving minor discrepancies, or fulfilling specific requirements from the underwriter.

Once all conditions are met and verified, the loan receives a “clear to close” status. This signifies final approval and indicates the lender is ready to disburse funds. Reaching this stage means the borrower has successfully navigated the financial scrutiny and property evaluations, moving closer to homeownership.

The Closing Day

The final stage of the home buying process involves reviewing the Closing Disclosure (CD), a document detailing all loan terms, fees, and closing costs. Borrowers must receive this document at least three business days before the scheduled closing date. This allows sufficient time to compare it against the initial Loan Estimate and understand all financial obligations, including the down payment and various fees.

A final walkthrough of the property is conducted within 24 to 48 hours before closing. This walkthrough confirms the home is in the agreed-upon condition, any negotiated repairs are complete, and the seller has vacated the premises. It is not a home inspection but a final verification that the property meets contractual expectations.

Buyers must arrange funds for closing costs and the down payment. These funds are usually transferred via wire transfer or certified cashier’s check, as personal checks are generally not accepted for large sums on closing day. The exact amount will be specified in the Closing Disclosure, encompassing lender fees, title insurance, escrow charges, and prepaid expenses.

The closing appointment is where all parties finalize the transaction. Attendees typically include the buyer, their real estate agent, and potentially a real estate attorney. The seller may pre-sign documents. A representative from the title company or closing attorney’s office facilitates the signing of documents, such as the promissory note, deed of trust or mortgage, and other disclosures.

Once all documents are signed, funds are disbursed, and the deed is recorded, legal ownership of the property transfers to the buyer. The journey from pre-approval to homeownership is complete.