Receive Your Mortgage Preapproval Letter
When you get preapproved, you usually get a preapproval letter. There are a few reasons the preapproval letter is important. First, real estate agents typically want to see your preapproval letter before they show you houses. This ensures they dont waste time showing you homes outside your budget.
Second, the preapproval letter is something you can share with the homes seller when you make an offer. It shows you wont have problems getting financed for the amount youre offering.
Transcript: Prequalification Versus Preapproval
Smart buyers do their homework. They estimate a price range for a house before they shop. You can do this with a mortgage prequalification or a preapproval.
A free mortgage prequalification lets you know roughly how much you can borrow, based on basic financial data you provide.
There is no fee or obligation and no credit check involved.
A pre-approval involves a more detailed look at your data and is based on a preliminary review of your credit information. It tells a real estate agent and seller that you’ve been preapproved up to a specific loan amount. With a preapproval, there may be a fee for the cost of the credit check.
Because it is based on more detailed information and an actual credit check, a preapproval has greater benefits than a prequalification.
With a preapproval, you’ll be able to shop confidently because you have an estimate of how much you may be able to borrow, and your real estate agent will know your approximate price range to search.
Getting preapproved or prequalified can help you estimate your price range.
However, it’s important to remember that neither one is a commitment to lend.
How Far In Advance Should I Get Pre
The best time to get pre-approved for a mortgage is at least one year before you decide to purchase.
As a home buyer, pre-approvals are for your benefit, so its never too early to get one.
Getting pre-approved early is an advantage because one-third of mortgage applications contain an error. These errors can negatively affect your interest rate and ability to buy a home. Pre-approvals uncover those mistakes and give you time to fix them.
Getting pre-approved also sets your price range. Pre-approved buyers are less likely to overspend or underspend! on their residence as compared to buyers who use online mortgage calculators.
Learn more about getting pre-approved before looking for a home.
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Requirements To Get Preapproved
Heres what lenders look for during the preapproval process:
- Proof of income. Lenders want to make sure you have enough income to afford a new monthly mortgage payment.
- Proof of assets. If you have any assets like stocks, bonds, savings accounts, retirement accounts or equity in another property, your lender will want to see the documentation for them.
- Employment verification. Lenders ask for verification of employment in the form of pay stubs and your most current Notices of Assessment. If youre self-employed, youll need to provide at least 2 years of tax returns to verify your income.
- Residence history. Lenders may ask for proof of your residency for the past 2 years. This could be a letter from your landlord if you rent, or proof of your current mortgage if you already own a home.
How Can I Increase My Mortgage Pre
Make sure that the prospective lender has accurate information, particularly on income and liabilities that you may have. You can ask to see the credit report that the lender used, and if you believe that it contains errors, you can contact the relevant credit bureau. Youll also need to contact the company that provided the information. You can also try other lenders, which might have different criteria. Remember, however, that multiple credit checks in a short time period can hurt your credit score.
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How The Mortgage Pre
This mortgage pre-approval calculator gives you the opportunity to know in advance how much home financing you can qualify for. But please understand its a calculator only, and the official number will be determined by a mortgage lender.
In addition, the validity of the results youll get from this mortgage prequalification calculator will only be as good as the information you input. For that reason, be as accurate as you can be. If you inflate any information, like your annual income or your credit score range, you may get a higher loan amount, only to get a smaller pre-approval amount from an actual mortgage lender.
The mortgage pre-approval calculator is self-explanatory, but heres a general overview.
Documentation Required To Get Pre
To get a full pre-approval, youll need to be prepared to provide the following documentation:
- Pay stubs Youll need to provide your most recent pay stub, which must show your year-to-date earnings. Youll need a pay stub for each job you have, and for each person applying for the pre-approval.
- W2s Many mortgage lenders will require your W-2 for at least the most recent calendar year. However, some lenders may require them for the past two years.
- Completed, signed income tax returns Youll need to provide these if youre self-employed, or have substantial real estate, investment, or partnership income. They should include all pages of IRS Form 1040, including schedules.
- Asset statements For bank accounts or taxable investment accounts, youll need to provide statements covering the most recent two months, or the most recent quarter. For retirement accounts, youll need to provide something similar.
- Gift information If some or all your down payment will come from a gift, youll need to provide the amount of the gift, when it will be available, who the donor will be, and what their source of funds for the gift will be. The lender will likely request that the donor complete a formal mortgage gift letter, that will request specific details.
- This can usually be satisfied by providing your drivers license. In some cases, the lender may request a copy of your Social Security card. These documents will be requested to verify your identity for federal compliance purposes.
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What If You Cant Get Pre
Not everyone will get pre-approved for a mortgage, but there are a few things you can do to get better prepared for the financial responsibility of homeownership:
- Work to improve your credit score. Your credit score is impacted by payment history, outstanding debt, the length of your credit history, recent new credit inquiries, types of credit used, and more. Generally a score of 720 and higher will get you the most favorable mortgage rates.
- Correct any errors on your credit report, which could help to raise your credit score. The lender will analyze your credit report for any red flags, such as late or missed payments or charged-off debt. Even if you are deemed to have bad credit, there are ways to still get pre-approved for a mortgage.
- Decrease your overall debt and improve your debt-to-income ratio. In general, a debt-to-income ratio of 36 percent or less is preferable 43 percent is the maximum ratio allowed. Use our debt-to-income calculator to determine your debt-to-income ratio.
- Increase your down payment amount in order to qualify for a larger loan. Learn more about down payments.
Be sure to ask your lender for tips on how you can improve your chances of qualifying for a loan.
Common Mistakes During The Preapproval Process
Any changes to your mortgage application after getting preapproved could affect your eligibility, interest rate, or home buying budget.
After getting preapproved for a mortgage, try to maintain the status quo until you close on the home. For example:
- Keep the same job
- Delay major purchases that could impact your credit or debttoincome ratio
- Protect your savings account
- Gather documentation for any large deposits into your bank accounts
If you do have any major changes in any of these areas, be sure to contact your lender as soon as possible.
Otherwise, by holding steady, you should be able to keep your mortgage preapproval intact and your home offer secure.
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Check Your Credit Score
The first place to start is reviewing your credit report and getting your credit score. Check with your bank or your credit card companies as they’ll often provide these for free. And each of the three national credit rating agencies, Equifax, Experian, and TransUnion are required to provide you with one free credit report per year.
You can request a report by going to annualcreditreport.com, or by calling the credit reporting agencies. If you’re planning to purchase the home with your spouse or another person, they need to request and review their credit reports as well. Review your credit reports for any incorrect information and, if you find any, contact the credit reporting agency to request a correction.
Check your , which is a number between 300 and 850. A higher score not only improves your chances of getting a mortgage loan, but may also help you qualify for a lower interest rate.
Don’t wait until you have found the home you want before looking for a mortgage. This will give you time to improve your credit score by reviewing your credit report for accuracy, paying your bills on time, and reducing your balances on your credit accounts.
Mortgage Rates Where You Live
Mortgage or refinance rates depend on different factors, including where you live. To better understand what rates you may qualify for, including what the average mortgage or refinance rate is in your area, take a look at Credit Karmas mortgage rate marketplace and our latest state-specific guides.
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How Long Is A Home Loan Pre
The good-for period varies with the lender, but typically anywhere from a month to 90 daysand, in some cases, six months. Its good practice to keep track of the expiration date so that you dont run into a situation where you find a dream home that you can afford only to learn that your pre-approval has expired.
What Is A Mortgage Preapproval
When youre shopping for a mortgage, you can compare options offered by different lenders.
Mortgage lenders have a process which may allow you to:
- know the maximum amount of a mortgage you could qualify for
- estimate your mortgage payments
- lock in an interest rate for 60 to 130 days, depending on the lender
The mortgage preapproval process may be divided in various steps. It may also be called mortgage prequalification or mortgage preauthorization. Different lenders have different definitions and criteria for each step they offer.
During this process, the lender looks at your finances to find out the maximum amount they may lend you and at what interest rate. They ask for your personal information, various documents and they likely run a credit check.
This process does not guarantee your approval for a mortgage.
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How To Apply For A Mortgage Pre
To apply for a mortgage pre-approval online, you need to do some initial research on possible lenders and think about your priorities in the purchasing or refinancing process. Just because online lenders tend to offer speed, convenience, and fewer fees doesnt necessarily make them the right fit for everyonemaybe a local lender can provide an experience that suits your preference. The point is, you wont know unless you dip your toe in the water and begin exploring your options.
If you choose to work with Better Mortgage, the process for getting pre-approved is simple. Simply set aside a few minutes to answer some questions and provide some information! From there Better Mortgage will verify your income, assets, debt, and credit to provide the most accurate estimate of your buying power. If youre not quite ready to get pre-approved yet, you can also use tools like an online affordability calculator to get a general sense of your budget.
How To Prequalify For A Mortgage
You have decided to buy a house, but don’t have enough money to make the purchase. Your situation isn’t unique, few people have enough cash on hand to buy a home. However, banks and mortgage companies offer loans, called mortgages, which provide people with the difference between what they have saved and the price of the home they wish to purchase.
While many people find the home they want and then look for a mortgage, it’s a good idea to look at your mortgage options first. It’s important to know how much you’ll be able to borrow before you find a house.
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Get Preapproved As Early As Possible
If you are starting your homebuying process, a mortgage preapproval letter says how much that lender is willing to lend to you. In other words, you will know how much house you can afford, making your house hunting process easier for you and your real estate agent.
Bear in mind that the letter may have an expiration date .
A Lenders Role In The Home Purchase Process
For most people, mortgage lenders hold the key to completing a home purchase. Yet, the ways in which they help potential buyerssuch as providing a preapproval letter and ultimately extending a loanremain unclear and undervalued.
In some cases, lenders may just market their services less prominently than real estate agents. In other cases, people may resist discussions about their financial history. And, for almost everyone, its just more fun to admire and tour homes currently on the market.
In reality, though, a home buyer is more likely to close on the house that they want if they contact a lender at the beginning of their search. What may feel to a first-time home buyer like the most intimidating part of the process will lead to less stress and disappointment in the months that follow.
From the sellers perspective, a preapproval letter from a reputable local lender often can make the difference between accepting and rejecting an offer. As a result, buyers would benefit from educating themselves on the steps required to reach that point.
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Can Real Estate Agents Require Preapproval Letters
As it turns out, there are no hard and fast rules about what real estate agents can and cant require before showing buyers different properties. Most wont require you to have one and are free to show buyers homes regardless of whether theyve applied for mortgage preapproval. However, some real estate agents prefer to work with clients who have already obtained preapproval letters before they start showing them potential properties to buy. This is because:
- Mortgage preapproval indicates to agents that buyers are serious.
- Having a preapproval letter reduces the risk of transaction financing falling through.
- Preapprovals help real estate agents make qualified offers on behalf of their clients.
- It serves as a form of good faith that demonstrates that youre committed to moving forward with a real estate purchase.
Note that if you have questions about whether or not a real estate agent prefers mortgage preapproval, the best thing to do is be upfront with your preferred real estate agent. If you want to see houses without getting preapproved, you should communicate this to the agent before starting the home viewing process.
In addition, if youre ready to make an offer and want to get into a house fast, also be advised: Getting preapproved before touring properties just makes good business sense. Getting preapproved can take anywhere from one day to several days.
Questions To Ask Your Lender Or Broker During The Pre
A good provider will guide you through the pre-approval process and advise you on the information they require. However, there may be a few questions you can ask that are more specific to your situation, such as:
- What is the ideal term length, amortization schedule, and down payment for me?
- Should I go with a fixed or variable interest rate?
- Are there any ways I can improve my credit and/or financial profile to help me qualify for a better rate?
- If there are any red flags that can stop me getting pre-approved, what are they? What can I do to rectify them?
Complete A Home Loan Application
To get preapproved, you need to fill out a mortgage loan application. Your lender will usually let you complete your loan application online, over the phone, or in person. Online applications typically take 1020 minutes to complete.
The loan application, also known as Form 1003, asks for your personal information, social security number, financial information, and loan information.
After your application is completed, the lender will pull a threebureau credit report known as a trimerge. This report shows your credit scores and credit history from the major creditreporting agencies: TransUnion, Equifax, and Experian.
Note, you can apply and get preapproved with any lender you wish. You can even get preapproved by more than one lender to find the best offer.
Preapprovals are nonbinding, and youre free to switch lenders before taking out the loan.
When Should You Get A Mortgage Preapproval
You should get a mortgage preapproval if youre serious about looking for and making an offer on a home within the next two months. Preapproval letters are good for 30 to 60 days, according to the Consumer Financial Protection Bureau .
If it takes you longer than a month or two to find a home, the lender may need to update your preapproval with more recent pay stubs and bank statements. If your house hunt takes more than 90 days, the lender may also need to pull a new credit report, which may impact your credit score.
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Our Advice Its Never Too Soon To Pre
The best time to get pre-approved is when you start thinking about homes. Pre-approved home buyers get better rates and better homes.
Getting pre-approved establishes your home purchase price range and minimum down payment and gives you time to edit and correct your credit.
Most importantly, though, pre-approvals indicate seriousness about buying a home.
Get pre-approved today in under 3 minutes.
Get pre-approved for a mortgage today.
Dan Green is a former mortgage loan officer and an industry expert. He’s appeared on NPR and CNBC, and in The Wall Street Journal, Bloomberg, and dozens of local newspapers. Dan has helped millions of first-time home buyers get educated on mortgages, real estate, and personal finance. Have mortgage questions? Ask Dan in the chat.