Monday, March 25, 2024

How To Be Pre Approved For A Mortgage

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Reason #: You Will Know If You Are Ready To Purchase A Home

Tips on getting pre-approved for a mortgage loan – first time home buyer 2022

Making sure that you are ready from both a financial and credit perspective is super important to know right from the start. If you are ready, you will be issued a pre-approval letter and can start shopping immediately.

If you are not ready, it will help you learn what steps you need to take to become eligible for a pre-approval. The last thing you want to do is to spend time searching and falling in love with a home to later find out you cannot get pre-approved.

Get A Prequalification Or Preapproval Letter

A prequalification or preapproval letter is a document from a lender stating that the lender is tentatively willing to lend to you, up to a certain loan amount.

This document is based on certain assumptions and it is not a guaranteed loan offer. But, it lets the seller know that you are likely to be able to get financing. Sellers frequently require a prequalification or preapproval letter before accepting your offer on a house.

Start The Preapproval Process

If youre ready to start house hunting or even considering it in the near future its time to start the mortgage process by getting preapproved for a home loan.

The approval process will help you lock in your borrowing power and give you an advantage in a competitive housing market. Itll also turn up relevant issues, like a low credit score, that you might fix before beginning your homeownership journey.

Ready to get started?

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Fill Out Your Application

Next up, you’ll fill out a mortgage application. This application includes your Social Security number and identifying information so that the mortgage lender can run a credit check.

A credit check to qualify for a mortgage counts as a hard credit inquiry, but if you’re shopping lenders within a 45-day time span, the combined checks would count as a single credit pull.

A sample mortgage application may look like this:

How Long Does It Take

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Getting pre-approved could take as little as one business day, depending on the mortgage lender you work with. It may take a few days or up to a week. Itâs longer if you have to undergo an income audit or other verifications. Generally, though, if you have your paperwork in order and your credit and finances in healthy shape, pre-approval should be a fast process.

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What Are The Advantages Of Getting Mortgage Pre

Obtaining mortgage pre-approval is the best way to prove to sellers that you are serious about buying a home. It demonstrates that you have gone through the steps necessary to determine how much you can afford in a home and you have the necessary paperwork to show for it. There are some real estate agents who will not work with buyers until they obtain mortgage pre-approval. After all, what is the point of looking at houses youre not sure you can afford?

Mortgage pre-approval sets you apart from buyers who have only completed pre-qualification and have not yet been pre-approved for a mortgage. This shows that you are serious about buying a home and gives you an advantage over the buyers who are just shopping for homes.

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Lock In Your Mortgage Rate

Usually, you can apply for what’s called a mortgage rate lock a guarantee from a lender to honor a specified interest rate for a set period once a seller accepts your offer.

Some lenders will let you lock in a rate once you’ve been preapproved, although you may need to pay a fee to extend the rate lock if it expires before you buy a home. Here’s some information on current mortgage rates.

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What You Need For Pre

If youre a Meridian Member, well have some of your information already on file. If youre not a Member, no problem. Well be happy to welcome you. Either way, heres a checklist of the details well need to get your pre-approval started.

The amount of money you owe today for loans or credit balances affects how much money you can be pre-approved to borrow. If you reduce your debt while you are house shopping, you may qualify for a higher mortgage when its time to finalize the paperwork.

Bid For Your New Home

How much can I get pre-approved for a mortgage

Ready to make an offer on a home? Getting a custom preapproval letter from your lender lets the seller know you are a serious buyer.

It will also give your loan officer a head’s up that you may sign a purchase agreement soon, which can help them prepare for the next steps in the mortgage approval process, such as arranging a home appraisal.

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Will Getting Preapproved By Multiple Lenders Hurt My Credit Score

If youre shopping around for a mortgage with different lenders, the multiple credit inquiries they conduct as part of the process are viewed as one inquiryif they all occur within a given period of time, typically within 45 days. This means your will not be negatively impacted, and allows you to get preapproved with multiple lenders in that window.

However, if you try to get multiple preapprovals but the applications dont all fall within that grace period, your credit score will be slightly impacted with each check.

Review Your Financial Situation

Before you apply for preapproval, it’s a good idea to assess your current financial situation.

Pull your credit report: Under normal circumstances, you’re entitled to one free report from each bureau every 12 months, but you can now get a free credit report every week through April 2021. Review your credit history to make sure everything is accurate you can reach out to lenders and the credit bureaus to make corrections if need be.

Calculate your debt-to-income ratio: A key factor in getting prequalified for a mortgage, your DTI ratio represents your total monthly debt payments as a percentage of your monthly income. Most lenders won’t offer a loan that will put your DTI above 43%. So, if you currently have an auto payment of $300, monthly minimum credit card payments of $65 and a monthly income of $5,000, your lender will only approve you for a mortgage with a monthly payment of $1,785.

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Receive Good Faith Estimate

Within three days of submitting the loan application, you will receive a Good Faith Estimate which will break down the estimated closing costs. This is not an exact list closing costs will typically deviate a bit from this breakdown but it will help you get a better sense as to what your closing costs will be.

Fha Mortgages For Nurses

Get Pre

Best fit for: Nurses with lower credit scores

FHA mortgages are mortgages insured by the Federal Housing Administration . FHA loans are popular with home buyers with below-average credit scores and buyers of multi-unit homes.

The FHA mortgage is known for its flexible approval standards:

  • 3.5% downpayment with 580 credit score 10% downpayment with 500 credit score
  • The same low mortgage rate for all credit scores
  • No interest rate adjustment for 2-4 unit homes

The FHA backs approximately ten percent of new mortgages.

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Keep Your Documents Handy

Documentation could cause major delays in the loan process. You want to make sure that if your loan originator asks you for documents, you can produce them almost instantly.

Keep a soft or hard copy-or both-of the following at all times:

  • Two years of tax returns and W2s
  • Six months of bank statements
  • One month of paystubs

Every bank, loan, and borrower are different. There’s no telling what you’ll need and when. The above may be overkill for some scenarios, but it’s worthwhile to have more than less available so that if these documents are required, you can provide them immediately.

If You Get Declined For Your Preapproval Dont Despair

  • Find out why you were declined, so you can figure out what to do to improve your chances of getting a loan in the future.
  • Ask the lender to explain why you were declined. Was your credit score too low? Was there specific negative information on your credit report?
  • Ask to see a copy of the credit score the lender used. If the lender used your credit score to deny your preapproval request, the lender must send you a notice with the credit score they used to make the decision and instructions on how to get a free copy of your credit report.
  • If there are errors on your credit report, get them corrected.
  • If you need help improving your credit, contact a HUD-approved housing counselor. You can find a counselor online or by calling 1-800-569-4287.

Visit our page to learn more about the facts and numbers we reference.

The process and forms described on this page reflect mortgage regulations that apply to most mortgages.

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What Does A Preapproval Letter Include

How To Get Pre Approved For A Home Loan

A preapproval letter includes your name, the price of the home you gave when requesting the preapproval, the loan amount youre preapproved for and the expiration date of the preapproval.

Some lenders also include conditions related to the preapproval in the letter, such as it only applying to a single-family home instead of multi-family property.

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What Is Mortgage Prequalification

Prequalification is an early step in your homebuying journey. When you prequalify for a home loan, youre getting an estimate of what you might be able to borrow, based on information you provide about your finances, as well as a credit check.

Prequalification is also an opportunity to learn about different mortgage options and work with your lender to identify the right fit for your needs and goals.

How Long Does Getting A Home Loan Preapproval Take

Once the lender has all of your information, the preapproval process can take as little as a few days. In fact, most Verified Approvals from Rocket Mortgage are accomplished in around 24 hours.

Sometimes the lender will require more information, which can take more time. Thats why its a good idea to make sure that your documents are all in order before you start the home buying process.

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Do You Work With Multiple Banks And Investors

Choosing the right mortgage broker or lender can save you money, time, and frustration. If youre working with a mortgage broker, you should ask whether they work with multiple lenders to ensure youre getting the best possible rate and deal. If youre working directly with a lender, ask instead what type of home loans they offer and which one is best for you.

What Is Ltv Ratio

Get Yourself Pre

The loan-to-value ratio is an assessment of lending risk that financial institutions and other lenders examine before approving a mortgage and compares the loan value to the market value of the property. Typically, loan assessments with high LTV ratios are considered higher-risk loans. Therefore, if the mortgage is approved, the loan has a higher interest rate.

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Keep A Record Of Your Extra Shifts And Overtime

When you work extra shifts, keep a separate file or spreadsheet that lists your hours worked and the pay you received. Documenting overtime helps mortgage lenders qualify your household income, which raises your maximum purchase price.

Lenders require written proof of overtime and extra pay. Your spreadsheet records and paystubs provide that proof.

Conventional Mortgages For Nurses

Best fit for: Nurses looking for low down payment options

Conventional mortgages represent 78 percent of mortgages made, and many nurses use conventional mortgages to buy their first homes. Conventional loans are backed by government agencies Fannie Mae or Freddie Mac and allow for low down payments of 3 percent.

Conventional mortgages are the default mortgage choice for most home buyers:

  • 3% down payment with the same low rates as 20% down
  • Subsidized interest rates in low- and middle-income areas
  • Flexible income guidelines for nurses with contract documentation

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Different Lenders May Request Different Levels Of Information And Documentation

Some lenders base preapproval letters solely on the information you provide. Other lenders dig into the details with you now to make certain you have all the documentation you need and prevent delays and surprises later. Ask questions. All lenders will require documentation at some point if you decide to apply for a loan. Its better to know now that you need an additional document than when youre about to close.

What Do You Need For A Mortgage Preapproval

How does the mortgage approval process work? (and how to get approved fast!)

Because mortgage preapproval requires submitting a mortgage application, it’s a detailed process. Items you should be prepared to submit with your application include the following:

  • Personal details: The lender will require proof of identity, such as a copy of a passport or a driver’s license, and your Social Security number.
  • Permission for a credit check: You’ll also be asked to authorize access to your credit reports and your credit score. It’s wise to check your credit report and yourself at least six months before starting the preapproval process to avoid surprises and to give you time to clear up any credit report inaccuracies that might be lowering your credit score.
  • Income information: To document your income, you’ll need to provide pay stubs, bank statements and tax returns for the past two years. If you are self-employed, the lender will average the annual incomes you reported on your tax returns for the previous two years.
  • Assets and debts: Mortgage lenders typically like to see indications that you have resources available to cover your loan down payment and to help make your loan payments in case your employment status or income changes. Assets can include savings, investments and property you own. Outstanding loans and credit card balances will appear on your credit reports, but you’ll also be asked if you have any other debts as well.

Note that requirements for down payments and other assets may vary by loan type:

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Make A Down Payment Of 20%

A larger down payment can go a long way. If you can make a down payment of at least 20% of the total purchase price, you may be approved for a higher loan amount.

Thats because putting down 20% eliminates private mortgage insurance, which is a cost tacked onto your monthly payments. The lender may increase your preapproval amount without mortgage insurance adding to your monthly mortgage.

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What Is Mortgage Pre

Mortgage pre-qualification is an informal evaluation of your creditworthiness and how much home you can afford based on self-reported information like your credit, debt, income and assets. Based on these inputs, pre-qualification estimates the amount a lender may be willing to lend you.

If youve gotten pre-qualified, the next step, called preapproval, involves providing documentation of everything you reported in your pre-qualification and a hard credit pull. Preapproval demonstrates a more serious step towards homeownership, whereas pre-qualification is an optional process that can be helpful for understanding your financial readiness to buy a home.

What Factors Are Considered For Preapproval

How to Get Pre

In addition to considering your credit score, lenders will want to verify your employment and income. Theyll also be considering your debt-to-income ratio , which is a calculation of your total monthly debts, divided by your monthly income. This ratio, expressed as a percentage, helps lenders make sure you have enough income to reasonably cover your debts.

The exact DTI needed for mortgage approval varies by loan type. But generally speaking, youll want your debt-to-income ratio to be 50% or lower.

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What To Provide To Your Lender Or Mortgage Broker

Before preapproving you, a lender or mortgage broker will look at:

Youll need to provide the following:

  • proof you can pay for the down payment and closing costs
  • information about your other assets, such as a car, cottage or boat
  • information about your debts or financial obligations

For proof of employment, you may have to provide:

  • a proof of your current salary or hourly pay rate
  • your position and length of time with the employer
  • notices of assessment from the Canada Revenue Agency for the past 2 years, if youre self-employed

Your lender or mortgage broker may ask you to provide recent financial statements from bank accounts or investments. This will help them determine if you have the down payment.

Your debts or financial obligations may include your monthly payments for:

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