In competitive markets, sellers prioritize offers with solid financial backing. What does this mean? For serious homebuyers, a pre-approval can be the foundation of a strong offer and a smoother transaction.
A pre-approval letter shows that a lender has already reviewed your credit, income, and assets. Why does this matter? It makes your offer stronger and can give you an edge over buyers who are not pre-approved.
The difference between pre-qualification and pre-approval
Many buyers assume these terms are interchangeable. They are not. Pre-qualification is a basic review based on self-reported information. Pre-approval is a thorough process where the lender verifies your financial details. Sellers and agents take pre-approvals much more seriously.
What lenders actually look at
Lenders will assess:
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Debt-to-Income Ratio (DTI): This measures how much of your income goes toward existing debt. A lower DTI makes you a more attractive borrower.
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Employment History: Stability matters. Frequent job changes or gaps in employment can raise concerns.
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Assets and Savings: Lenders check for enough reserves to cover down payments, closing costs, and emergency expenses.
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Credit History Beyond the Score: Late payments, large recent purchases, and credit inquiries can impact approval.
How to strengthen your Pre-Approval
If you want the highest possible approval amount and the best loan terms, you will need to take these steps:
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Pay down outstanding debts to lower your DTI.
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Avoid opening new credit accounts before and during the homebuying process.
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Keep financial documents organized, including tax returns, bank statements, and pay stubs.
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Be upfront about any financial changes. A job switch or large deposit in your account can affect underwriting.
Pre-Approval Expiration and what to do next
Most pre-approvals are valid for 60 to 90 days. If your home search takes longer, you may need to update documents and have your credit checked again.
Keep your finances stable during this period, it will help you to avoid unwanted surprises. To connect with my preferred lender, please contact me for more info.
