Understanding the Pre-Approval & Finance Process for a Home Loan


If you’re looking into buying your first home, one of the first things you’ll likely notice is that real estate agents typically want to see a mortgage pre-approval letter before they’ll start working with you. The process of getting pre-approved and financed for a home loan can seem complicated and intimidating, but it’s actually quite straight-forward.


What is Mortgage Pre-Approval?


First, it’s important to understand the difference between a pre-qualification and a pre-approval. Specifically, a pre-qualification is essentially a report from a lender that estimates the amount you could likely get financed for based on the information you’ve entered.


A pre-approval, on the other hand, is a more formal document that actually lists the maximum amount of financing you’re approved for based on a credit check and a thorough processing of your mortgage application. Typically, real estate agents want to see an official pre-approval letter so they can be sure you can secure financing for the home you want.


In order to get pre-approved for a mortgage, you typically need to submit to a credit screening, in addition to providing the lender with some or all of the following documentation:


  • Pay stubs
  • W-2s from previous tax years
  • Copies of tax returns
  • Recent bank statements

When is a Mortgage Finalized?


After you’ve received a pre-approval, you can begin looking at houses until you find the one that works with your needs and budget. However, you should keep in mind that your mortgage isn’t finalized until you’ve selected a home (whether it’s an existing home or new construction) and had it appraised. The appraised value needs to be equal to or greater than the agreed-upon sale price of the home; otherwise, your mortgage lender will not finalize the loan.


Once the appraisal report comes back, your mortgage lender will receive a copy and verify that the appraised value is at least the amount of the loan. At that point, your mortgage company will give you the go-ahead to close on your new home.


As you can see, there are a few important steps worth following (and a few contingencies to consider) if you want to buy your first home. If you’re interested in buying your first home brand-new, our experienced and knowledgeable team here at Smith Douglas Homes is here to help you navigate the entire process.


Decide if home ownership is right for you by downloading our free e-book for first time and new home buyers.