How to get pre-approved for a mortgage
Get Pre-Approved for a Mortgage – Most sellers anticipate buyers to have a pre-approval letter and will be more likely to work with those who can demonstrate that they can get financing.
To be pre-approved for a mortgage, prospective buyers must produce papers proving their assets and income, strong credit, and employment verification, among other things.
IMPORTANT TAKEAWAYS
• Most sellers demand mortgage pre-approval letters from homebuyers and will be more likely to negotiate if you have one.
• You’ll need proof of assets and income, strong credit, employment verification, and any other documentation your lender may require required to get you pre-approved for a home loan mortgage.
Pre-qualification vs. Pre-approval
A mortgage pre-qualification can be helpful in determining how much you can afford to invest in a property, but a pre-approval for a mortgage is far more valuable.
Get Pre-Approved for a Mortgage – A pre-approval for a mortgage indicates that the lender has evaluated your credit, the potential home buyer, and verified the documentation in order to authorize a specified home loan amount (the approval usually lasts for a particular period, such as 60 to 90 days).
Get Pre-Approved for a Mortgage – Consultation with a mortgage lender and securing a mortgage pre-approval letter benefit prospective house buyers in various ways.
First, the prospective house buyer will consult with a mortgage lender to review their home loan alternatives and budgeting.
Second, the mortgage lender will run a credit check on the homebuyer to see if there are any issues.
Get Pre-Approved for a Mortgage – The homebuyer will also learn their maximum home loan amount, which will enable them to determine the price range for the house they wish to buy.
A mortgage calculator can help you budget for your home purchasing costs.
Pre-qualification vs. pre-approval: what’s the difference?
Get Pre-Approved for a Mortgage – An evaluation of an applicant’s credit report is required for both home pre-qualification and pre-approval. The extent of the credit review is what makes a big difference between receiving a pre-qualification letter or a mortgage pre-approval.
Prequalification mortgages require a preliminary check of one’s credit and only give a potential home borrower an indication of how much and under what terms they might qualify for a mortgage.
Mortgage pre-approval, while only provided for a limited time, requires a comprehensive credit evaluation and provides the potential home borrower with a credible offer of credit from a lender, which they can use to make good-faith offers on properties for sale.
Tips on Getting Pre-Approved for a Mortgage
Get Pre-Approved for a Mortgage – Get Pre-Approved for a home loan
Get Pre-Approved for a Mortgage – To get pre-approved for a mortgage, you’ll need five things:
- proof of income,
- proof of assets and liabilities
- good credit,
- employment verification, and
- other types of documentation your lender may require.
Information you need to know to gather so you are prepared for the pre-approval process:
1. Proof of Income
Get Pre-Approved for a Mortgage – House Buyers generally must produce
- W-2 wage statements from the past two years,
- recent pay stubs that show income as well as year-to-date income,
- proof of any additional income such as alimony or bonuses, and
- the two most recent years’ tax returns.
2. Proof of Assets and Liabilities Needed when Getting Pre-Approved for a Mortgage Loan
Bank and investment account statements are required to show that the borrower has sufficient funds for the down payment and closing costs, as well as cash reserves.
The down payment stated as a percentage of the purchase price depends on the loan type.
Unless the homebuyer puts down at least 20% of the purchase price, many house loans require the buyer to purchase private mortgage insurance (PMI), pay a mortgage insurance premium, or pay a funding charge.
Pre-approval is based on the buyer’s FICO credit score, debt-to-income ratio (DTI), and other considerations, depending on the type of loan, in addition to the down payment.
Except for jumbo loans, all conform to rules set forth by government-sponsored organizations (Fannie Mae and Freddie Mac).
Certain loans, such as HomeReady (Fannie Mae) and Home Possible (Freddie Mac), are intended for first-time home buyers and low-to-moderate-income homebuyers.
Veterans Affairs (VA) loans, which require no money down, are for U.S. veterans, service members, and not-remarried spouses.
A potential home buyer who receives money from a friend or relative to help with the property down payment may need a gift letter to prove that the funds are not a loan.
Assets – What is required for your pre-approved home mortgage loan
- Bank Accounts: Name of bank, address, account numbers, types of accounts, and present balances. With checking, use average balances.
- Copy of two most recent statements of all accounts.
- Stocks and Bonds: Copy of certificates or copy of recent (within 30 days) broker statement listing the investments.
- Life insurance: Cash value, only if being used for the down payment.
- Vehicles: Year, make, and value. Copy of title if under 4 years old with no outstanding lien.
- Real Estate: Address and market value. If free and clear, deed of release, deed, or mortgage payoff.
- Present Home: Copy of sales contract, settlement sheet, and/or lease.
- Gift Letter: The form will be provided by a financial representative. Donor Capacity must be verified. The receipt of funds must be shown in the account.
Liabilities – Needed to get You Pre-Approved for a Mortgage
- Credit Cards: Account numbers and outstanding balances.
- Loans (Auto, Mortgage, Personal, Student, etc.): Name of institution, address, account numbers, outstanding balances, monthly payments, months left on loan. Copy of next payment coupon.
- 12 months’ statements or canceled checks for the present mortgage.
- Alimony and Child Support: Copy of Ratified Decree and property settlement setting out terms.
VA Loans
- Certificate of Eligibility: To obtain the certificate, you will need a DD-2L4 (Separation of Service), or if in the Service, you will need a Statement of Service signed by the Commanding Officer of Personnel
- Officer (certificate must be updated prior to application).
- If in service, you will need the Authorization to Live Off Base (DD-L7L7 from Housing Office) and Transfer Orders (if applicable).
3. Credit requirements to prequalify for a mortgage
For a conventional loan, most mortgage lenders require a FICO score of 620 or above, and some even require that score for a Federal Housing Administration loan.
Home borrowers with a credit score of 760 or higher often receive the best interest rates.
According to FHA guidelines, eligible borrowers with a credit score of 580 or above can put down as little as 3.5 percent.
Those with poorer credit scores will have to put down a higher down payment.
Homebuyers with a low or relatively low credit score will typically work with mortgage lenders on how to improve their credit scores.
4. Employment Verification
Lenders want to be sure they’re only lending to borrowers who have steady employment.
A lender will want to see the buyer’s pay stubs as well as phone the employer to confirm employment and salary. If a buyer has just changed jobs, the lender may wish to contact the old employer.
Homebuyers who are self-employed will have to produce considerably more information about their business and income.
According to Fannie Mae, the following factors are considered when approving a home mortgage for a self-employed borrower:
– the borrower’s income is consistent,
– the borrower’s business location and nature,
– the demand for the company’s product or service, the company’s financial strength, and
– the ability of the business to maintain making and issuing sufficient income to enable the borrower to make the payments on the mortgage.
Typically, self-employed borrowers need to provide at least the two most recent years’ tax returns with all appropriate schedules.
List of 8 documents needed for Employment information
- Present Employer: Name, address, and contact person to send employment verification form.
- The explanation for any gap during 2-year history.
- Relocation letter for any transferees – giving date, salary, new location, and any relocation benefits.
- Previous Employer: Name, address, and a contact person going back 2 years if not in present job 2 full years.
- Present Salary: Year to date pay stub and last 2 years’ W-2s
Any variable income, commission, part-time income, bonus, overtime, interest income, etc., is being used to qualify: 2 years of signed federal tax returns and W-2s and 1099s.
- Self-employed: 2 years signed federal individual and corporate returns (if applicable). Also, a profit and loss statement and balance sheet.
- Diploma or transcript if student during 2year period.
5. Other Documentation
Get Pre-Approved for a Mortgage – The lender will need to take a copy of the mortgage borrower’s driver’s license and will need the borrower’s Social Security number and signature, allowing the lender to pull a credit report.
Be prepared at the pre-approval for your home mortgage session and later provide (as quickly as possible) any additional paperwork requested by the mortgage lender.
The more cooperative you are, the smoother the mortgage process.
List of Other income items
- Rental income: Copy of lease which is current and at least one year in length.
- Alimony and Child Support (only if used for qualification): Copy of divorce decree and property settlement (ratified) setting out terms. Proof of payment will also be requested at the application.
- Income From Notes Held: A copy of the ratified note.
Retirement, Social Security, and Disability Income:
– Copy of award letter and latest check showing the amount of present payment.
– Copy of end of year statement if applicable.
Do’s & Don’ts During the Mortgage Home Loan Process
There are certain “Do’s and Don’ts” which may affect the result of your home loan request.
These remain in effect before, during, and after loan approval up until the time of settlement when your mortgage loan is funded and recorded.
Countless times, credit, income, and assets are verified the hour before you have signed your final mortgage loan documents.
Here is a list that you should comply with:
MAKE SURE YOU DON’T: Do anything that could affect your credit and jeopardize your ability to receive a home loan. These actions may also place you in breach of your Sales Contract, jeopardize your ESCROW deposit, and put you at danger of being sued.
DO NOT QUIT OR CHANGE EMPLOYMENTS. If you think this is going to happen, talk to your mortgage house loan officer and phone their office.
DO NOT enable anyone other than your mortgage lender to pull your credit report.
DO NOT APPLY FOR CREDIT OTHER THAN FROM YOUR MORTGAGE LENDER. This results in extra “hits” on your credit report, potentially lowering your credit score.
DO NOT change bank accounts or transfer money within your existing accounts.
DO NOT co-sign for anyone, for any reason, for anything.
DO NOT purchase or attempt to purchase anything else on credit such as another car, truck, boat, furniture, or another real estate.
DO NOT charge any abnormal amounts to your current credit cards or credit lines.
DO NOT send in late payments or incur late fees for anything.
DO NOT wait longer than the time frame given per your contract to provide all necessary mortgage application paperwork and information to your lender when requested.
MAKE SURE THAT YOU DO:
DO keep all accounts current, including mortgages, car loans, credit cards, etc.
DO contact both your mortgage lender and your real estate sales associates anytime a question may arise.
DO make all payments on or before due dates on all accounts, even if the account is being paid off with your new loan.
DO have any lender-required money/funds to your home loan officer within 72 hours after the home inspection is complete.
DO return phone calls from your real estate agent, mortgage loan officer, settlement company, or anyone else involved in your real estate transaction within 2 hours of a message.
Get Pre-Approved for a Mortgage – When should I get pre-approved for a mortgage?
It’s essential to get pre-approved for a home mortgage loan right before you start looking at houses.
Mortgage pre-approval helps you decide what you can afford by confirming how much you’re qualified to borrow. (However, you might not want to spend as much on a house as you can afford.)
A mortgage pre-approval letter also places you ahead of other potential homebuyers who have not yet been pre-approved.
How long does a mortgage pre-approval last?
The length of time a mortgage pre-approval is valid varies by mortgage lenders, however, most mortgage pre-approvals are valid for 90 days.
Get Pre-Approved for a Mortgage – It’s possible that the pre-approval letter has an expiration date. You can ask the mortgage lender to renew the pre-approval if you’re still looking for a home after that.
You may be required to give updated information, and your credit may be checked again by the lender.
Why should I get pre-approved by more than one lender?
You can compare all-in costs and find the best deal by shopping around.
When applying for a mortgage, half of the home purchasers (50%) select only one lender.
Will Mortgage Pre-Approvals Hurt My Credit Score?
This is a prevalent misconception among homebuyers when it comes to being pre-approved.
Getting pre-approved is a huge benefit to you as a homebuyer since it gives you the confidence to make offers and avoids any future disappointment.
A skilled realtor and a knowledgeable seller in a competitive market like ours will not even consider a financed offer without a pre-approval letter.
Credit Bureau Scoring
Credit bureaus utilize a secret algorithm to condense your credit history into a single credit score, which they don’t reveal.
Having a handful of inquiries come in close together will cost you points on your credit score.
Should you be concerned about the impact of mortgage pre-approvals on your credit reports? Very likely not.
One inquiry’s “Ding” is very small.
A single query on your credit record will only cost you five points at most. Your score, which can run from 300 to 850, is likely to suffer even less.
Unless you are seeking a new mortgage for your home and are right on the edge between a good credit score and a fair credit score, five points shouldn’t make any difference in your loan terms.
Making the Home Mortgage Process Easier
The credit bureaus are aware of the tight timelines involved in obtaining a mortgage. As a result, they’ve taken precautions to avoid pre-approval inquiries from showing up on credit reports.
For example, if you’re looking for the best home mortgage rate and many mortgage companies make credit queries about you within 45 days of each other, all of those questions will be bundled into a single event with a little impact on your credit report.
Any credit queries made within 30 days of your mortgage loan application will likewise be excluded from your credit report.
As a result, it’s practically impossible for the mortgage pre-approval procedure to harm your credit score enough to affect your mortgage conditions, so don’t be concerned if your real estate agent requests to see your letter of pre-approval.
It’s not a bad idea to be pre-approved for the house loan you want.
CONCLUSION
Preparing for the Mortgage Lender, you need to Provide:
- Proof of Income
- Proof of Assets and Liabilities
- Credit requirements to prequalify for a home mortgage
- Employment Information / Other income
- Other Documentation – Personal information
- Full names of all purchasers as they are to appear on the house title.
- Social security numbers of all purchasers.
- Present residence address for all purchasers.
- Previous address for all purchasers going back two years if they have not resided in the present home for two years.
- Home, office, cell phone numbers.
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