I have discussed this topic before, but it bears mention again. Homebuyers almost always wait until the last second to get pre-approved. Why? If you know you are interested in buying a home, and if you are in fact actively looking, why wait? Homebuyers seem to think the pre-approval process is instantaneous, but it is not. It is not even quick and it certainly is not easy. Below is a list of steps, and sub-steps, involved in a pre-approval that will hopefully clarify how much is involved, and why you need to allow several days, at the very least. A week or more is preferable.
1. Complete the pre-approval application, either online, or over the phone with a mortgage loan officer.
2. A credit report gets pulled.
3. There may be something on your credit report that needs to be addressed or corrected. I see about 2 of every 10 credit reports have a negative credit item that needs to be paid off, fixed or corrected because it is a mistake.
4. Documentation will likely be required; a pay stub and a few bank statements at a minimum.
5. If you are self-employed, commissioned or own rental property, be prepared to provide the two most recent years of tax returns.
6. If there is a gift coming from a family member for the down payment be ready for the donor making the gift to provide a bank statement to the mortgage loan officer.
7. Be prepared to be asked further questions as a result of the data that you provide.
8. After documentation is collected, the analysis is ready to be done.
9. Be prepared to potentially be asked more questions or provide more documentation.
10. Finally you are ready to be issued a pre-approval. You will most likely have questions on the pre-approval and need time to go over those questions. Everyone needs to remember that this entire process has a human involved at every step; it’s not as if it is fully automated. There are too many rules to fully automate the process. A loan processor, mortgage loan officer and an underwriter are all not going to drop everything because you are calling for a pre-approval at 4 p.m. and have to have it done to get an offer in on a house by 6 p.m. that evening.
The moral of the story is to plan ahead! If you plan ahead you will have a smoother transaction and have an easier time beating out the competition in what is becoming a more complicated and competitive real estate marketplace.