Six Critical Considerations Before Starting the Pre-Approval Process

Are you pre-approved for a home loan?

Have you heard this question yet?
If you are not, I am sure you will hear it a thousand more times before you are pre-approved.
Are you’re thinking what does that even mean?

How do I get started?

Yes, this is one of the beginning steps of the home buying process, but before you jump straight into the pre-approval process, let's understand what that means. Being pre-approved means you have gone through an application process with a lender and they have provided you with a pre-approval letter that states something similar to this:

“Bob Smith has been approved for a (insert type of home loan here—[more on that later]) with a sales price of “X” amount of dollars. This decision is based on a complete review of the borrower's qualifications, including evaluation of income, credit history, and closing funds. The loan is subject to lender final approval”.


Essentially, what this means to you, is that during the application process, the lender looks at and verifies items such as your income, savings, credit score, credit history, job history, debt, etc. In order for lenders to get a clear picture of your situation they have to run a full credit report, this does affect your credit but very minimally and usually not enough to disqualify you from getting a home loan.

Six things to think about before starting the pre-approval process:

  1. Know the difference between a Retail Lender and a Mortgage Brokers. Both lenders are qualified to complete your pre-approval process. There are just a few differences between a Retail Lender and Mortgage Broker and one might fit your needs better than the other. A Retail Lender reaches out directly to their consumers. These lenders can be found in your local banks such as Wells Fargo. These loans are usually done in house, but that comes with a Loan Origination Fee that is typically 1% of the purchase price of the home. Mortgage brokers on the other hand take loan applications and then find the right Wholesale Lender that fits your situation. Like a matchmaking service. Mortgage Brokers are paid by the Wholesale Lenders all at a flat rate, which allows them to shop all Wholesale Lenders to find you the best deal by matching you with one who will give you the best rate and terms according to your goals. The advantage is choice.

  2. Questions to ask a potential Lender or Broker: How many loans they complete annually, how many years they have been in business, and what their loan completion rate is. It’s important that the Lender or Broker you are working with is not just knowledgeable, but has experience. Another important thing to know is how successful they are at completing a loan, and the reason for that is so when you go into contract on a home you can be confident that your lender will be able to qualify you.

  3. Have a general knowledge of different loan types: While there are a multitude of financing options, let’s focus on the most common ones: FHA, VA, and Conventional/Traditional mortgages.

    1. The FHA Loan which stands for Federal Housing Administration, often called the First-Time Home Buyers Loan, is a Government backed loan. How that impacts you the buyer, is that the down payments on FHA financing can go as low as 3.5% of the purchase price, they can carry lower closing costs, and the lenders can have easier credit qualifying standards.

    2. The VA Loan is very similar to the FHA loan, except that it is only available for Veterans of the United States Armed Forces. Plus, it has a 0% down payment. These two loan types also require that the purchaser typically occupy the property as their primary residence.

    3. Lastly, Conventional/Traditional mortgages usually require a down payment of 5-20% of the purchase price, with Private Mortgage Insurance (PMI) being required on anything less than 20% down. They are also typically more stringent on credit requirements.

  4. Know your personal budget: It is so important to know what your family's personal budget is. Typically one should not spend more than 30% of their income on their house payment: For example if your family brings home a net of $5,000 a month your mortgage payment should not exceed $1,500 per month

  5. Home Buying Expenses: During the buying process there will be some additional expenses other than the down payment, each of the costs will vary depending on your contract and the current market.

    1. Earnest Money

    2. Home Inspection

    3. Appraisal

    4. Closing Cost

    5. Down Payment (depending on the loan type)

  6. Home Expenses: Once you own a home it is important to plan in your monthly budget for repairs, maintenance, and improvements. Every home will experience wear and tear even if you keep it in the best condition so plan for some monthly and annual maintenance expenses.

If you think starting the pre-approval process is something you might be interested in, now it’s time to take it one more step and learn about the whole home buying process. Make sure to download the FREE home buying guide above and reach out to us so we can get the process laid out for you.