Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.
One of the first things a serious buyer must do once they have decided to begin the process of buying a home is to “become pre-approved.” How to get pre-approved for a mortgage? is there a way to get mortgage pre-approval online? Where to find a mortgage pre-approval calculator? Becoming pre-approved by a lender is an easy ordeal. The lender you chose for this does not necessarily have to remain your mortgage lender down the road. You can pretty much go to any bank and get it done. You can call any bank or any mortgage broker to get a pre-approval. Later in the process, when you are in contract, you can shop for a mortgage by looking for the best rates out there and negotiate.
We will explain to you why you need to get a mortgage pre-approval letter in NYC before starting to look for an apartment. As our friends at credit.com describe:
“Mortgage pre-approval is a promise from the lender that you’re qualified to borrow up to a certain amount of money at a specific interest rate. This remains subject to a property appraisal and other requirements.”
If you want to act quickly, buyers must have their pre-approval letter ready to go. When we submit an offer, we always include your mortgage pre-approval letter (or pre-qualification letter) and REBNY Financial Statement.
Getting a mortgage pre-approval from a bank before searching for your NYC apartment is critical:
First, it allows you to understand how much you can afford and how much a financial institution is willing to lend to you. This will point you and your real estate in the right direction in refining your search for apartments.
Second, it shows homeowners you are a well-qualified buyer. When evaluating offers to purchase, NYC homeowners want to see that you can afford the property they are selling. Plus, they want to know that you are serious and that a bank or lender is willing to extend you a mortgage loan (if you are pursuing mortgage financing). Having a pre-approval letter ready puts you at an advantage versus other NYC buyers who may not be as organized, especially if you find yourself in a bidding war.
However, consider a serious and credible bank since this document will represent one of the first introductions to the seller. To issue a pre-approved letter, the bank will look at your following information:
You need to speak with your mortgage broker about getting a mortgage pre-approval letter as soon as you’ve made up your mind to purchase a property. Don’t wait until you have identified a target property to bid on. If you’re confident that you want to go ahead with buying a home, then it’s time to get that pre-approval letter on hand.
You can think of a pre-qualification as pre-approval-lite. You provide information to your lender, giving you a rough sense of the loan you should be able to get.
A pre-qualification is the first step in the pre-approval process. Therefore, you submit a snapshot of your financial situation to a bank. For instance, this includes a list of your income, debt, and assets. After a quick review, the lender provides you with a pre-qualification letter stating an approximation of the mortgage you are “pre-qualified” for. Typically, banks a soft credit pull during this process. Therefore, this will not affect your credit score. The pre-qualification process can be handled quickly over the phone or online and takes a few minutes.
Based on our experience, it’s very inexact and not particularly reliable. For example, if you provide incorrect or incomplete information, you could be pre-qualified for a loan you can’t get. Therefore, most brokers and sellers do not rely much on a pre-qualification letter.
A pre-approval is more detailed and tends to occur as the follow-up step to a pre-qualification. The homebuyer completes a full mortgage application, including submitting financial documentation and a hard pull of your credit report for review.
Indeed, your bank will order a credit check and do a more thorough review of your financials. The bank also asks how much of a down payment you plan to make. Because it requires more work, some lenders charge a fee, but most are just happy to be your likely lender when you do buy.
This documentation typically includes details on income and assets, liabilities or debt, pay stubs, and any other relevant documentation. Based on this detailed information, the bank will evaluate your debt-to-income ratio and creditworthiness. Therefore the lender can provide a specific description of loan sizes and the potential interest rate and mortgage payment on loan products you are eligible for. The bank has a good sense of your credit, financials, and approximate transaction details.
Everyone will take you more seriously. That’s because they know you’ve taken the time to speak with a mortgage banker and send them financial documentation about yourself. Once pre-approved, the bank provides you with a pre-approval letter which will remain valid for 60-90 days, and details the loan amount you are approved for. The bank has started to underwrite your file. In other words, a lender has already vetted you to an extent. Furthermore, your buyer’s broker will have an easier time scheduling showing when they tell listing agents you are pre-approved.
In short, obtaining a pre-approval or pre-qualification letter may seem like something that the buyer does not need to do right away. However, when you find the one, you want to move quickly and place an offer. A delay from waiting for a pre-approval could result in you missing a deal or slow you down while other buyers are submitting bids for the NYC apartment you want.
Additionally, it will give the lender a preview of which products best suit you and determine your maximum borrowing capability. The pre-approved letter will specify the maximum amount you can borrow and the rate at which you’d borrow. It does not mean you are prequalified. It does not guarantee you will get a mortgage but provides significant weight on your offer.
These letters remain valid for 60 days approximately. We advise clients to get updated versions before submitting a serious offer. This will improve credibility and sincerity. There are many mortgage pre-approval calculators online where you can get an idea of how much you can get approved.
You received a pre-approval from one given bank. That does not mean that you have to use them for the actual mortgage. Once they’ve found their dream apartment, all NYC home buyers should shop around to get the best rate & product to save even more money. If you have questions, reach out to NestApple for some mortgage banker recommendations.
Should you get pre-approved or pre-qualified for a mortgage? If you are window shopping, it does not matter much. However, if you are serious about buying a home, you should get a pre-approval.
Some brokers and sellers may not know or care about the difference, but most do. We have had had clients provide a pre-qualification, and the seller’s agent asked to upgrade to a pre-approval. Since getting a pre-approval letter may take some time, it’s always best to take care of it early in your homebuying process. You don’t want the stress to be waiting for one while you are under a tight deadline like a best and final or a bidding war.