When I get calls from buyers, one of my first questions is, "have you gone to your lender to get a pre-approval". Some are pre-approved through a lender, and some are not. The one's that aren't will often want to see houses before they start the loan process, but that's putting the cart before the horse. Here's why:
Let's say you go looking at houses, maybe even without the help of a trusted REALTOR® (most experienced Agents won't take you out looking at homes without previously being pre-approved). You find the perfect house. Great! Time to write an offer.... "wait" you think "will the bank give us this much money?", you ask. Okay, you give the lender a call to set up an appointment. If you're talking with a Bank, likely your appointment isn't going to be the same day, so now your perfect home is sitting on the market, without you having an offer accepted on it and you're hoping that no one else scoops it up. You start to get ready for your appointment with the lender. You're going to need to provide all of your income documentation, your tax returns, etc. So go dig that out of the closet. Okay, so a day or two later, you show up at the bank with all of your information, and the loan officer gives you a pre-approval letter. You go to make the offer, only to find out that in the mean time, the sellers have received another offer that they are negotiating. They will let you know if it doesn't work out. Now, you're back to square one.
There's an important distinction that I'd like to discuss and that's the difference between a pre-qualification and a pre-approval. The first one is something the broker will give you just by taking some basic info over the phone. They'll email you a pre-qual letter.
The pre-approval means that you have come in, provided the broker with all of your income and asset information, tax returns, and divorce decrees & alimony information, as necessary. The lender should pull your credit and run your info through what we call, "Automated underwriting" or "Desktop Underwriting". This means that the computer system looks at your info and gives a preliminary "yes" or "no" if it thinks you will be able to get the loan. Even this is not a guarantee of lender approval, but it's a lot better than nothing at all.
When should you get the pre-approval? ASAP. Having a lender review everything 30 days before you start looking is NOT too early. Maybe you've been divorced previously, and you find out you need to provide a copy of your divorce decree, or child support judgement. Don't know where it is and need a new copy from the court? Is it Friday at 5 PM and the courts are closed? You'll have to hope nobody puts in an offer before Monday. Let's say there is something on your credit that doesn't belong. Maybe you paid that item off already, or it's simply not your item of credit and it belongs to someone else with a name similar to yours (it happens). It can take 30, 60, sometimes even 90 days to clear up these issues, and you simply don't want to have to deal with that discovery after you walk though the door of your dream home.
If you are three months or less away from looking at homes, talk to a reputable lender today. Make sure everything is in order and let's take care of any surprises now instead of letting them become nasty issues when you find your new home.