How to get pre approved for a mortgage
Why getting preapproved for a mortgage is important
When purchasing a home it is important to get a pre-approval, pre-approvals are important if you plan to finance the home through a mortgage. A pre-approval helps know what your budget is, lets sellers know you a not a risk, and allows for simple and smooth purchase of the home.
But you might be asking what exactly is pre-approval and how exactly do I get one.
This blog will discuss what exactly is pre-approval, what it can do for you in the terms of buying a home, and what criteria need to be meet in order to get preapproved for a mortgage.
What exactly is pre-approval
A pre-approval is what lenders is like a criteria in order to give you any kind of loan for a house, these pre-approvals are determined by financial documentations. While the lender might not give you loan right there, it shows that lender has looked over your debt, credit, income, assets, etc. and has determined that you are a serious buyer.
A pre-approval often requires the following:
- The terms of the loan
- The loan type
- An interest rate estimate
- The loan amount you are approved for
- Some criteria that need to meet such as home appraisal.
Why exactly is a pre-approval so important
- Gives you an advantage: If you have proof of pre-approval to show sellers and real estate agents they will consider selling you the home instead of those who have no pre-approval or who have not taken that step to get pre-approved.
- Speed things up: Having a pre-approval can speed up the process of getting the home you want because the underwriting has already been taken care of.
What could effect chances of approval
Lenders have some criteria that they want you to meet before they just lend you money.
- A stable income: Lenders want to make sure that you get a job so that you can pay off that loan, the lender isn’t just giving the money away.
- Down Payments: like most big purchases a down payment or some kind of deposit is required, and the higher down payment you make the lower the interest rate you get.
- Credit Score: Lenders check if you have a good credit score, if it shows you have a low credit score than it could be a red flag for you.
Any kind of unseen changes in life like buying a new car or leaving your job can be put your approval status in a bad spot, make sure you hold off any large financial decisions until you close on the home. These are very important for to get preapproved for a mortgage.
Want to know more head to Mortgage Movement.
Some Common pre-approval mistakes that should be avoided
Failing to read the Pre-Approval agreement: It is wise to know what you are agreeing to, some banks may have some fees and fixed interest rates that might not be in you best interest.
Not being ready for Approval: It is important to take a few months to work off any debt you may have before sitting down and getting approval.
Don’t change jobs or get new credit cards: While house searching it best to avoid obtaining any new credit cards and changing your career path.
Not looking into other opportunities: Different lenders offer different interest rates and fees and they can vary either small or largely. It is important to make sure you work the right lender who is best interest rate agreements that work for you.
Steps to take to get pre-approved for a mortgage
Gather any Financial Documents you might have.
Lenders will require an idea of what your financial status is, make sure to have:
Identification: Make sure to have identification like driver’s license and Social Security Card.
Debt Information: These can be car loans, student loans, and credit card balances.
Proof of income: W-2s, any recent payment stubs, and, tax returns, its best that these documents have been received within the last 2 years.
Proof of assets: These can be Bank statements, investment accounts, and retirement accounts.
Check Credit
Lenders will require that you have a decent credit score at around 620, the reason is that they want to make sure that you can repay the debt in full and on time. You can check your credit by doing any of the following:
- Credit Karma or if your bank has a credit check feature.
- AnnualCreditReport.com ( your able to get one free credit check with a card every year).
If you score lower than the one stated above then it is best either look for other lenders that will lend you money at your current credit score or try to improve your credit before applying for a pre-approval.
If you want to learn how to improve your credit head to Experian.
Types of Loan your looking for
Before even considering going to a lender to obtain any loan, know what mortgage payment options are best for you. The mortgage payment options often depends on some factors like your current income, current lifestyle choices and habits, and any debts you may have. The loan types below are just some of loans you can get.
- Conventional loans: Most selected choice for those who have good credit.
- FHA loans: Best for those who don’t exactly have good credit.
- VA loans: Best for those who are veterans or on active duty.
- USDA loans: The best option for getting rural properties and with low income buyers.
Look around the best lender for your needs
While going to first bank or lender maybe the quickest it might not be the best option. Some lenders may offer better interest rates, fees, and overall customer service, lender types can be:
- Online Lenders
- Mortgage Brokers
- Banks or Credit unions
- Maybe friend (not recommended)
Go to multiple lenders and see which one best suits your needs by comparing fees, interest rates, and customer services.
To learn more about how to pick the right lender head to Bankrate.
Submit a formal application to see if you qualify.
After you checked if you have a good credit score, rounded up all finance documents, picked a loan option, and selected the best lender, its time to apply for the loan. To file for a loan it needs the following
- Fill out a mortgage application
- Submit all final financial documents
- Rechecking credit score
The process can pretty much be done remotely no need to go in and do it with a person, however some people prefer to do it in person.
When you receive your pre-approval
Not you might not get a pre-approval but if you do you will get a letter from the lender saying how much the lender will give you, and the letter lasts for around 60 to 90 days.
Note: if you change jobs or have a change in financial status your pre-approval could be revoked.
What is the difference between Pre-Approval and Pre-Qualifications
While these terms might seem similar they are two very different terms:
Pre-Qualification: This is much more simple and quick, and is determined to by self reported financial information. This process is good for knowing what you might be able to borrow but doesn’t exactly help with purchasing a home.
Pre-Approval: The Pre-Approval process is much more in-depth, with pre-approval it requires a credit checks and documentations. This process is able to determine the possibility of obtaining a mortgage.
To learn more about the difference head to Bank of America.
What comes after Pre-Approval
After the pre-approval has been completed, you will be able to look for a house that is well within your price range. If you ever make an offer on a home just flash that pre-approval to the seller and it will show that you are serious buyer. Once your offer is selected then begins the underwriting or agreement process which involves the following:
- Second checks on your income and credit.
- Verifying all financial statements and documents.
- Appraisal of the property in question.
Once all that is squared away and everything is clear you will finally become a homeowner.
Conclusion
The process of obtaining a pre-approval for a home might seem rather scary, but trust us when we say that getting a pre-approval for a home is smart decision for home buying. Not only does it give some confidence but in buyer’s market it gives you an edge in obtaining a home. To start the pre-approval process find the right lender for you, check if decent to good credit, and gather any financial documentations, and once then you will be looking for a new homes with an edge in no time.