Five things to know about pre-approvals

VHFA offers loan programs through local participating lenders to help people bridge the gap and afford to buy a home in Vermont. Getting a pre-approval from a lender is the first step in the process. Here are answers to the top 5 questions homebuyers have about pre-approvals.       

1. What is a pre-approval?

A pre-approval is a letter from a lender stating that they are tentatively willing to lend you a specified amount of money so you can buy a home. Lenders base their pre-approval decision on a limited look at your personal financial health. A pre-approval helps you understand your estimated price range. However, to fully understand the costs of buying a home, you should ask the lender to clarify:

• Estimated monthly house payment,
• Estimated closing costs and down payment,
• Loan purchase price and geographic restrictions, and
• How much you could afford given different housing types and locations.

2. When should you get I pre-approval?

Real estate agents and sellers want to work with buyers who are ready, willing, and able to purchase. Therefore, it is best to contact a lender and get a pre-approval before you start seriously shopping. A pre-approval letter shows that you are prepared, and that you will likely have the financial power to complete the purchase when the time comes.

3. How does pre-approval affect my credit score?

A lender will issue a pre-approval only after reviewing your credit report. When a lender reviews your credit report to make a lending decision it is called a “hard pull” and it may affect your credit score. If you contact a few different lenders to compare rates, closing costs and customer service, limit additional hard pulls to within 30 days of the first hard pull so that only one is counted on your credit score.*

Different loans have different credit requirements. For VHFA credit requirements, contact a VHFA participating lender.

4. How long is a pre-approval good?

One common misconception is that buyers must find a home before their pre-approval expires. This is not true. Pre-approvals are good for up to 60-90 days. However, if very little has changed regarding your income, savings, employment, and credit, you may renew your pre-approval simply by contacting your lender and asking for an update. Many buyers will not renew their pre-approval until they find a home they are interested in.

To ensure you remain pre-approved, it is very important to not make any changes to your financial situation without contacting your lender to understand how it will impact your pre-approval status. Consult with your lender and your real estate agent to determine the best time to renew your pre-approval. 

5. What should I do before contacting a lender?

When it comes to personal finances, it pays to be organized. To speed up the pre-approval process, organize your financial documents before contacting a lender. If your documents are well-organized and readily available, lenders will appreciate it, and they will be able to help you in a timely manner.

Lenders generally base their decision to issue a pre-approval on the following factors:

• Your current rent or mortgage payment,
• How much you can afford to pay each month (gross monthly income and monthly debt payments),
• How much you can afford for closing costs and a down payment (savings, investments, etc.),
• Whether your income is likely to continue (employment history), and
• How well you handle credit (credit score and history).

Here is a list of documents to gather before you contact a lender to ask for a pre-approval.  Your lender may request others so be sure to provide them with all of the information they request:

• Pay stubs for the past 30 days
• 2 most recent bank statements with all pages for all accounts
• 2 years of federal tax returns with all schedules, W2s and 1099s.
• 2 most recent investment and retirement statements
• Driver’s license or other official identification

Interested in VHFA? Contact a VHFA participating lender to ask for a pre-approval.

All VHFA mortgage programs are offered through local Vermont-based participating lenders. Click here if you are interested in finding a VHFA participating lender.

Questions about VHFA or the homebuying process? We are happy to help! Call (800) 652-3400 or email [email protected] to contact a VHFA staff member that can answer your questions.