Find out how much house you can borrow before you start looking – and how you can make the strongest offer possible on the property you choose.
Many people have already told you that if you want to buy a house, you should think about getting prequalified or preapproved for a mortgage. Itâs time to understand exactly what each of those terms means and how they might help you. And when youâre working toward a goal this big, you want every advantage.
You may qualify to borrow more money than you are comfortable spending on a home. But that doesnt mean you have to spend more. Its a good idea to limit your home search to houses priced at an amount you can comfortably afford. Use Bank of America’s Home Affordability Calculator to find the mortgage amount that fits your budget the best.
Before you buy a house, it’s important to get pre-approved for a mortgage. Sellers will see that you are a serious buyer who has been checked out by a lender. But does being pre-approved mean you’ve already been given the money for your down payment? Let’s look at it in more detail.
What is Mortgage Pre-Approval?
Pre-approval is when a lender thoroughly reviews your finances, including income, debts, and credit score to determine the loan amount you qualify for.
To get pre-approved, you’ll need to provide documents to your lender such as:
- Tax returns
- W-2s
- Pay stubs proving your income
- Bank statements
- Debt information
- Identification
- Proof of down payment funds
The lender will check the information, look at your credit, and make sure you meet their requirements for getting a mortgage.
The loan amount, interest rate, and other terms of the pre-approval will be written in a letter to you once you’re approved. This tells sellers that you are a good buyer who has been checked out by the lender.
Does Pre-Approval Include the Down Payment?
The short answer is no. Pre-approval is for the loan amount only. It doesn’t mean you’ve been given the money for the down payment.
As part of the pre-approval process, the lender will want to see that you have the down payment money available. This is sometimes referred to as “reserves” or “assets.”
You’ll need to show statements proving you have the cash for the down payment sitting in your bank accounts. The lender wants to verify you have adequate savings and will be putting down the amount needed for the loan program and down payment percentage you are using.
For conventional loans, you typically need at least 3% down payment, while FHA loans allow down payments as low as 3.5%. Jumbo and other loan programs have different requirements.
The pre-approval letter will state the down payment amount the lender used to calculate your pre-approval. But they have not yet “approved” that you have the down payment cash.
When is the Down Payment Approved?
The lender will verify you have the actual funds for the down payment closer to closing when you are under contract on a home.
At this stage, you will go through the full mortgage approval process if you haven’t already. The lender will again review your financial situation and assets to ensure you still qualify for the loan and have the down payment funds.
You will need to show current bank statements (typically 2 months of statements) proving the down payment money is yours and available. Other assets may also be verified again.
The underwriter will approve the final loan application and issue a clear to close once you have met all financial requirements, including the down payment.
Tips for an Easy Pre-Approval Process
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Shop lenders and compare mortgage rates and fees. Make sure to get a pre-approval from the lender you want to use.
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Gather all the needed documents upfront so the process moves quickly.
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Review your credit report and resolve any issues beforehand.
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Have your down payment funds in your account for at least 2-3 months prior. Avoid large deposits right before applying.
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Be upfront about all your financial details. Don’t hide anything that may later delay approval.
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Ask your loan officer questions along the way so there are no surprises.
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Get pre-approved as soon as you start looking for homes, and before making an offer. Rates and home prices can change fast.
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Be prepared to act quickly once your offer is accepted!
Pre-Approval vs Pre-Qualification
One last thing to clear up is the difference between pre-approval and pre-qualification:
Pre-qualification is getting an estimate of what you may be able to borrow. It typically only requires income, debts, and a credit check.
Pre-approval is when the lender verifies all your financial details and does full underwriting. This results in a pre-approval letter with actual terms you are approved for.
Pre-qualification is helpful for understanding your price range. But pre-approval is what shows sellers you are a serious buyer with the financing ready to go.
Get Pre-Approved Today
Now that you know pre-approval is for the loan amount – not the down payment – you can start the pre-approval process with confidence.
The sooner you get pre-approved, the better position you’ll be in to win those bidding wars and finally land your dream home! Reach out to discuss your home buying goals today.
What is mortgage prequalification?
Prequalification is an early step in your homebuying journey. When you prequalify for a home loan, youâre getting an estimate of what you might be able to borrow, based on information you provide about your finances, as well as a credit check.
You can also learn about the different mortgage options and work with your lender to find the best one for your needs and goals while you are prequalified.
What information do I need to provide?
| PREQUAL | PREAPPROVAL |
|---|---|
| Income information | Copies of pay stubs that show your most recent 30 days of income |
| Credit check | Credit check |
| Basic information about bank accounts | Bank account numbers or two most recent bank statements |
| Down payment amount and desired mortgage amount | Down payment amount and desired mortgage amount |
| No tax information required | W-2 statements and signed, personal and business tax returns from the past two years |
Does Pre-Approval Include Down Payment? – CountyOffice.org
FAQ
Does pre-approval amount include down payment?
What does pre-approval include?
What is mortgage preapproval? Preapproval is the closest thing you can get to proving that you can afford a home without actually buying one. You will complete a mortgage application and the lender will verify the information you provide. They’ll also perform a credit check.
What’s the minimum down payment for a $300,000 house?
If you want to buy a $300,000 house, your down payment amount can range from $9,000 to $60,000. That’s between 3% and 20% of the home price, depending on your loan type. A conventional loan typically requires a down payment of at least 3%. But an FHA loan requires 3. 5%, or $10,500.
Is the down payment included in the loan amount?
No, the down payment is not included in the loan amount. The down payment is an upfront payment made by the buyer, reducing the amount of the loan needed to purchase the asset.