by Lee Nelson

Getting a pre-approval for a mortgage loan can not only help you in your quest to buy a house  you can truly afford, it also can show you if there are any problems that you may need to fix on your credit report ahead of time before you apply for the actual loan. And in this day and age of competitive housing markets and scrutinizing loan regulations, a pre-approval has become critical.

“Pre-approvals are vital these days. In our area of the country and in many areas, a realtor won’t even accept an offer without a pre-approval attached,” said Jo Lewis, past president of the Nebraska Mortgage Association and mortgage loan originator at Liberty First Credit Union, Lincoln, Neb.

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A pre-approval letter can be the difference between actually getting your offer accepted by the seller and having it rejected. In the Cincinnati, Ohio, area, a lot of houses have been sitting around for awhile and weren’t priced right.

“People were just waiting for the right house at the right price, and now is that time,” says Kathy Koops, realtor/real estate blogger at Coldwell Banker West Shell Real Estate, West Chester, Ohio. “If two people come in with the same offer, and one person has a preapproval and the other one doesn’t, who do you think the seller will go with?”

She says the reason sellers want the preapproval is that it lets the selling process go smoother, and faster, usually. A pre-approval does not guarantee a loan, however. It just says that the lender looked through the buyer’s credit history and income, and they would qualify for a particular loan amount. Most pre-approval letters are good for 60-90 days and can be reinstated if the buyers update their information with the lender, says Lewis.

“To get a pre-approval letter, you first need to have a verbal conversation with the lender. Don’t just go online and fill out the pre-approval application. Talk with the originator. Ask what they need to know,” she says. “You will get better service and better attention if you make the call first.”

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During that conversation, the lender might get enough information to realize that he/she shouldn’t be pulling your credit report quite yet because you just aren’t ready to go. You might have some income issues or past credit history that might pop up on your report that would hurt your chances of getting a pre-approval letter or a loan, Lewis says.

“For instance, I had one person that was just talking with me on the phone, and she comments that her bankruptcy was six months ago, and everything is good since then,” she says. “In that case, I won’t even waste that credit pull. I need to first understand which bankruptcy it was and what it was for. And then I can guide her a little bit and help in the whole process of eventually getting a pre-approval.”

Some other ways to get a pre-approval for a mortgage include:

• Get a pre-approval from a lender locally that is easy to get a hold of. “When we get a preapproval letter from a lender we’ve never heard of or is from one of those internet companies, it is tough to get a hold of them if you have a question,” Koops says. “If you have done lots of deals from certain banks, you know how they do business. It’s just easier on the real estate agent and seller.”
• Make sure you have less than 50 percent, preferably 33 percent or below, used up on your available credit line for your credit cards.  Having three or four credit cards that you are paying off nicely with no late payments is wonderful, Lewis says. You also should have a car loan which is paid on time.
• Have a two-year history with a profession or particular business. If you are self-employed, make sure you have documentation of what you get paid and how long you have been doing this same job.
• Don’t defer your student loans. Most people don’t realize that even if they defer, the interest is still accumulating. “Eighty percent of my buyers have a mark against their credit score because of student loan problems,” Lewis says. “When the interest piles up, that means you owe more than you did from the original loan and that gives you hits against your credit score.”
• Have all those extra documents available such as any divorce or paternity decrees, bank account information, child support payments, inheritance documents and whatever else effects your income.

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There is no standard to what a pre-approval should look like or include, Koops says. Getting one might take a few days or as soon as 24 hours if the buyers have given all the information and documents upfront.

“We want to get a clear picture of who you are and how you pay your bills,” Lewis says. “It’s the key to not putting a consumer in a loan situation that will put them in a negative situation. Lending institutions don’t want to own houses. We want to be in the loan lending business.”