Did you know many Americans are buying homes right now? If you need to get a mortgage first, we can help.
In this guide, we’ll go over how to get the best mortgage pre-approval. You’ll learn about what documents you’ll need to provide and when to start shopping.
Want to learn more? Keep reading.
What’s a Prequalification?
Prequalification will sometimes get used interchangeably with pre-approval. Yet, these two terms don’t mean the same thing.
With a prequalification, you give the lender an overview of your debt, income, and finances. The lender will provide you with an estimated loan amount.
A mortgage prequalification will give you insight into how much you’ll be able to afford. The lender won’t pull your credit reports or verify financial information. It won’t allow you to make offers.
What’s a Pre-Approval?
With a pre-approval, you will fill out a mortgage application. You’ll provide your Social Security number so the lender can complete a hard credit check.
The lender will then pull up your credit report. They will check your creditworthiness. They will do this before deciding to lend you money. The assessment will get recorded on your account and impact your score.
A soft credit check occurs if you pull your credit yourself. A credit card company or lender might pre-approve you for an offer without asking. A soft credit check won’t impact your score.
List all your bank account information, income, debts, and assets. You’ll need your employment history and past addresses for the lender to check.
A lender wants to know that you’ll repay the loan. Lenders use the information to figure out your debt-to-income and loan-to-value ratios. These factors will determine the ideal loan type and interest rate.
The pre-approval is more valuable than a prequalification. The lender checked your financial situation and verified your documentation. Now they can approve a loan.
The final loan approval will occur when the appraisal’s done and the loan gets applied to a property.
What Mortgage Lender Should You Choose?
Before you pick a lender, you should research them. Make sure you learn about the loan officer or lender who will handle your mortgage. You want to find an experienced lender.
After you’ve chosen a lender, you’ll need to provide the information for the pre-approval process.
What Information Do You Need?
To begin the pre-approval process, you’ll start with a mortgage application. The lender will want to examine your finances.
You’ll provide employment verification, proof of assets, ID, proof of income, and credit history. You might include pay stubs, social security numbers, and W-2 statements.
After submitting the information, you could get the estimate in a few business days.
If you choose an online lender, you might receive the estimate faster. The estimate will let you know if you’ve gotten pre-approved and for what amount.
When Should You Apply for a Pre-Approval?
Knowing how much you can get for a mortgage will help you narrow down your options. Begin the pre-approval process when you start your home buying search.
Do you want to buy a new house? Look at getting a pre-approval now. This way, you can show real estate agents you’re serious about buying a home.
Why Will You Buy the House?
Before choosing a house, consider if you will buy it as an investment or as a new home.
Some people will choose to invest in a secondary home and rent it. Learn more about the investment process. Residential real estate investments have become more popular.
What About the Mortgage Pre-Approval Letter?
After getting pre-approved, you will receive a pre-approval letter.
The letter is something you will need to show your real estate agent. This way, the agent doesn’t waste time showing you houses that aren’t within your range.
The pre-approval letter will also be something to share with the home’s seller when making your offer. You will show the seller that you won’t have issues getting financing for the offer amount.
Will the Pre-Approval Last Long?
A pre-approval won’t last forever. You should find out the expiration date as you search for houses.
The expiration date will vary, but it could last up to 90 days. If you haven’t chosen a home, look at requesting a renewal. Give your lender your current credit information and financial documents.
Work With a Few Lenders
To get a decent deal on your house, you’ll want to find the best home loan. Each lender will have different interest rate options and guidelines. These differences will impact your monthly payment.
If you get pre-approved by only one lender, you will have to choose that offer. If you get pre-approved by a few lenders, you’ll be able to choose the best offer.
Your lender will haul out your credit report during this process, which is a hard inquiry. Choose to shop around for a mortgage. You’ll have a period where multiple inquires will get counted as a single inquiry.
Try to get the different rates within 14 days of one another.
Start Your Mortgage Pre-Approval Process
We hope this guide on applying for a mortgage was helpful. The mortgage pre-approval process can feel daunting for some homeowners.
Make sure you have your financial documents in order. Try to improve your credit score before applying. A pre-approval will give you some direction on how much you can afford.