Shopping for a new home should be an exciting time in your life. But worry over price can put a real damper on moving day. That’s why getting mortgage pre-approval is recommended. With pre-approval, both you and your lenders know exactly what your budget is.
But how do you get mortgage pre-approval? There are some basic steps you should follow and necessary paperwork that will make the process a quick and simple one.
Let’s get into it.
Mortgage Pre-Approval Made Simple
You can increase your odds of receiving mortgage pre-approval by having the basic paperwork and information prepared.
Credit Score and Reports
Your credit score is a key component in almost every financial decision you make. Your credit score will impact many variables of a loan including the interest rate, limit, and approval.
A high credit score and clean report show lenders that you are a responsible and trustworthy candidate. Mortgage lenders will feel more confident offering you pre-approval if you have a history of consistently paying on time.
Your credit score shows if you are a reliable candidate for mortgage pre-approval based on your past history with payments. But your income information is equally as important.
This will show that you are currently making consistent income and can even show the likelihood for continued employment in the future. No one wants to loan money to someone who is either making little to no money or has unstable employment.
Proof of employment includes pay stubs, W2 forms and even a letter from your current and previous employers. It’s not a bad idea to bring proof of additional income as well. This might include Social Security payments, VA benefits, child support, alimony or a second job.
The more proof of income or money backing your loan the better. Assets are another important component in the mortgage pre-approval process.
Aside from your income, lenders are interested in any additional money you currently have or are in-line to receive. Assets include stocks, investments and even gifted money from family and friends.
Bring any documentation that shows your additional assets.
Your mortgage lender needs to verify your identity and paperwork.
When you do sit-down to discuss your pre-approval qualifications, the lender will need proof of identification. This can easily be shown with a valid driver’s license.
You’ll also need your Social Security number. Lenders will likely run their own credit check at this time.
This step in the mortgage pre-approval process links back to the first item on our list about income information.
Your lender will want to know that you are gainfully and consistently employed. Having current employment is often not enough. You’ll need to show a consistent track record of being employed.
Lenders might also ask your current employer information like when your last raise was, if a raise is predicted in the future and whether or not your position is likely to be eliminated.
Mortgage lenders want a guarantee that you’ll have employment throughout the duration of homeownership.
Things to Know About Mortgage Pre-Approval
We’ve covered what paperwork and information are needed when meeting with a potential lender, but there are other important things you should know before even beginning the application process.
The Difference Between Pre-Qualification and Pre-Approval
Both of these processes can help you budget for your new home. Pre-qualification gives you a general idea of the amount of loan you might get.
Pre-qualification is usually the step before you apply for pre-approval and can often be done over the phone without a credit check. The lender will simply ask questions regarding your income, a possible down payment amount, assets, and debt.
Based on this information, you can receive a very loose idea of what type of loan you may qualify for.
Mortgage pre-approval is when the actual figures, amounts and credit reports are considered and used to determine eligibility.
The Pre-Approval Meeting
You’ll need to make an appointment for pre-approval. After the application is made, the lender will determine whether or not you are a good candidate for a loan.
You will receive what’s called a Loan Estimate (LE). This is a document outlining the terms of the loan. Here you’ll see the interest rate, closing costs and what type of loan it is. There are several types of loans used with mortgage pre-approval including fixed-rate and adjustable.
Pre-Approval is Not a Guarantee
Just because you have received a GFE, it doesn’t guarantee that you will receive the loan. It simply means you’ve been approved to get one.
A commitment to the loan, by the lender, normally comes after the home you are considering has been appraised. An appraisal ensures that you aren’t paying above market value for the home.
The appraisal also assures lenders that if you default on the loan, the property can be sold for an amount that will make them whole again.
Pre-Approval is Worth the Time
You might be thinking that the pre-approval process seems drawn out and unnecessary. Perhaps you think pre-qualification is enough.
Though pre-approval does take some time, it is well worth it in the end. Once you receive your GFE, you’re able to compare and consider several lending options.
There may be lenders willing to offer you a lower interest rate, which is an important factor when it comes to purchasing a home. Applying with several lenders will help you spot the best deal.
Another important fact to note is that credit scoring recognizes multiple credit checks in a short period of time as a part of the loan-shopping process. You won’t receive penalties for doing so.
Let Us Help You Buy Your Dream Home
If you’re in the market for buying a new home and aren’t sure where to start, let us help.
Feel free to contact us today for additional information and let us make homeownership a breeze.