You’ve Been Preapproved for a Mortgage—Now What?

What to Do After Getting Preapproved or Prequalified for a Mortgage

After you have gotten preapproved or prequalified for a mortgage, you should take a few key steps to maximize your chances of getting final approval for your loan and buying a home of your own.

Here are the steps to take after the preapproval/prequalification process to strengthen the offer you make on a home and to avoid delays during the mortgage approval process.

1. Finalize a Budget You’re Comfortable With

Your lender will prequalify or preapprove you for a set amount of money, but you do not have to borrow the entire amount for which you're eligible.

In fact, Freedom Mortgage offers tailored prequalification letters for those who want to spend less than their maximum qualifying amount. For example, if you're prequalified to borrow $300,000 but only want to spend $250,000 on a home, we can provide a prequalification letter for the lower amount.

You may choose to spend less than the maximum your lender will allow, as you don't want to be house poor or struggle to pay your bills. Ideally, you'll cap housing costs (including your home loan, property taxes, homeowners insurance, HOA fees, and utilities) at number that you are comfortable with and that fits within your budget and income.

When you create a budget, you should also make sure you have enough money to cover upfront costs, which could include your down payment, closing costs, and an emergency fund.

2. Start Shopping for Homes

Once your prequalification or preapproval has established how much you're likely to be able to borrow, you have a better picture of your financial situation. You can use this knowledge to guide your home search.

You may not be able to find a dream home with everything you want, so prioritize what's most important to you and begin shopping for properties in your area.

For example, this may include focusing on location if you hate commuting or finding a neighborhood with a good school district if you are starting a family.

A real estate agent can help you find a home that fits your lifestyle and your budget and ideally checks as many of your “dream home” boxes as possible.

3. Avoid Major Financial Changes

Remember, prequalification and preapproval are not final decisions. If your financial situation changes in an adverse way, your lender may ultimately not be able to approve your loan.

There are many reasons this could happen, including situations when:

• Your credit score drops before closing
• You finance a large purchase and change your debt-to-income ratio
• You quit your job or take a major pay cut
• You make large unexplained deposits before closing, as you may need to document the source of funds so lenders can determine whether they represent undisclosed debt or otherwise affect qualification

4. Prepare for Mortgage Underwriting

Once you have found a home and are ready to finalize your loan approval, you must go through the mortgage underwriting process. During this phase, the lender takes a very detailed look at your financial circumstances and the documents/information you provided.

The underwriter is specifically trained to minimize risk in lending and to follow loan program guidelines. Underwriters may request many different kinds of documentation, from pay stubs and proof of employment to bank account statements. The goal is to assess how likely it is you'll be able to repay your loan.

Having these documents ready can help the underwriting process go more smoothly and maximize the chances you'll ultimately be able to borrow.

5. Be Ready to Make an Offer

When you have found the right home, making an offer is the next key step. Providing a mortgage preapproval or mortgage prequalification with the offer will strengthen it. You can show the seller that you are very likely to get approved for financing to close on your home loan.

Especially in competitive markets, sellers may get many offers. They'll usually pick the strongest, which may mean they'll pass over any buyer without preapproval or prequalification. You may also need to move quickly to submit your offer and accompanying documentation.

If your offer is accepted, a home inspection is important to make sure that there are no health or safety issues or other major problems with the home. Your mortgage lender may also ask you for more documentation so you can get to final approval.

What Not to Do After Mortgage Preapproval or Prequalification

Since neither preapproval nor prequalification is a guarantee you can borrow, it's important to avoid making financial decisions that affect your ability to get final loan approval.

Here are a few key moves to avoid that could increase the risk of lending to you and potentially result in your application being denied:

• Take on new debt: This affects your debt-to-income ratio, and lenders may be unable to give you a loan if your debt-to-income ratio changes.
• Change jobs: Lenders want your employment to be stable. Changing jobs could cause lenders to fear that you'll lose your income and become unable to make loan payments.
• Miss loan document deadlines: Failing to provide all of the requested documents to the underwriter could delay your approval or result in your loan being denied due to your non-responsiveness.
• Make large cash deposits: Large unexplained cash deposits make lenders nervous unless they know the source. Lenders won't give you a loan if they don't know where the money came from.
• Let your mortgage prequalification or preapproval lapse: The specifics for how long mortgage preapproval lasts can vary by lender, so be sure you understand your lender's timeline.
• Spend the money earmarked for your down payment or closing costs: You must have the necessary money to put down to close on your loan.

By avoiding these moves, you can maximize the chances your loan will get to closing and your chosen home will become yours.

What Happens After Your Home Offer Is Accepted?

After your home offer is accepted, lenders typically require an appraisal. You also must go through the underwriting process to get officially approved for a mortgage.

The lender will determine both if you can borrow and if you can borrow for the specific home. If the home is worth enough to act as collateral and your finances check out, you should be able to close on your home.

Final Thoughts: Understanding What Happens After Mortgage Preapproval

While preapproval or prequalification can be an exciting milestone, you're not at the end of the road yet.

Working with your lender to understand how to get to closing, and making sure you keep your finances stable, can help you to ensure you're able to affordably buy the home you've been hoping for. Reach out to Freedom Mortgage today to get the process started.