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.
Home Loans Preapproval Checklist
- A drivers license or U.S. passport
- A Social Security number or card. If not a U.S. citizen, a copy of the front and back of your green card
- Verification of employment
- Copy of their credit reports from the three national credit bureaus
- Recent pay stubs covering the last 30 days
- W-2 forms from the previous two years
- Proof of any additional income
- Last two years of personal federal income tax returns with all pages and schedules. If self-employed, last two years of individual federal income tax returns with all pages and schedules, as well as a business license, a year-to-date profit and loss statement , a balance sheet, and a signed CPA letter stating you are still in business
- Bank account statements proving that you have enough to cover the down payment and closing costs. If someone is helping you with the down payment, a gift letter stating that the fund is a gift and not an IOU
- Last quarterly statements for asset accounts , IRA, stock accounts, mutual funds)
When Should I Get Preapproved For A Mortgage
A mortgage preapproval lasts for 60 90 days before you must renew it. When youre ready to look at homes, apply for mortgage preapproval.
If you just want an idea of how much you can afford or what lenders may offer you, ask for a pre-qualification. This isnt a preapproval, and sellers wont accept it, but its a nice estimate of what you might be able to afford.
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Are You Ready To Buy A Home
There are two kinds of letters prequalification or preapproval. Individual lenders set their own criteria, so be sure and ask what the process entails, the federal Consumer Finance Protection bureau advises.
Prequalification is a lender’s less-invasive look at your ability to pay, sometimes relying on information or estimates you provide the lender.
If you want an initial idea of what you can afford, prequalification can be a good first step, advises Teri Williams, chief operating officer of OneUnited Bank, the largest Black-owned bank in the country.
“As you get closer or you’re more focused, and think ‘I’m going to buy something within the next three months,’ then you might move to a preapproval,” Williams said.
What Does A Preapproval Letter Include
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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Comparison Shop With Multiple Lenders
Its a good idea to compare offers from several different lenders to ensure you get the lowest mortgage rates. If you choose to get a mortgage pre-approval from a bank, you typically have to go into a bank branch. It also requires a hard credit inquiry .
But with Credible, you can secure a pre-approval letter in just three minutes from our partner lenders in the table below. Plus, Credible uses a soft credit check which wont affect your score.
How Long Does A Mortgage Preapproval Last
Your preapproval letter will state that the preapproval is valid for a limited period of time, such as 60 or 90 days from the date it was written.
The lending terms spelled out in a preapproval document may not be guaranteed sometimes a preapproval application fee includes a rate lock-in that’s guaranteed for the life of the preapproval letter.
Absent that, if prevailing interest rates rise or your income or credit score drops between the preapproval process and when you apply for your mortgage, you may be charged a higher interest rate or offered a lower total loan amount than the one specified in the preapproval letter.
If you decide to finalize a mortgage from the lender that issued your preapproval, you may need to submit updated versions of that information to the lender before the loan can be completed. Whether that’s required depends on the lender’s policies and the amount of time between the preapproval and your acceptance of a loan offer.
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Can You Get Denied After Being Preapproved For A Mortgage
Yes, you can get denied for a mortgage loan even after being preapproved for it. There are a number of reasons this could happen. For example:
- After preapproval, new negative information could appear in your credit history, dropping your score below the lenders qualification guidelines
- If you lost your job prior to closing on the loan, youd likely be denied. Thats because the lender can no longer verify youll be able to make your monthly payments
- Running up too much credit card debt before the loan closes
Basically, anything that significantly impacts your financial picture between your preapproval and loan closing could change your mortgage eligibility.
Also keep in mind that a preapproval typically happens prior to beginning your home search. As such, your new home must also be approved by the lender.
For example, the loan amount cant exceed the homes appraised value. And if youre getting an FHA loan or a VA loan, the new home must meet government safety standards. The presence of lead paint in an older home, for example, could derail the homebuying journey.
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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What Documents Do You Need For Mortgage Preapproval
To get preapproved for a mortgage, you must prove that you make enough money to afford the payment, have adequate assets for the down payment and closing costs, and have a solid credit history.
To do this, you must provide your paystubs for the last month, asset statements for the last two months, and W-2s or tax returns for the last two years.
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.
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Benefits Of Getting Preapproved
Getting preapproved is beneficial for several reasons. Most importantly, youll have an accurate idea of how much you can actually afford to spend on a new property. Having a preapproval letter can also give you an advantage over other buyers.
Bringing a preapproval letter to a buyer or real estate agent shows that youre prepared and serious about making a purchase. It proves that you can get a loan for at least the asking price of the house or property.
Questions To Ask Your Lender Or Broker When Getting Preapproved
When getting preapproved, ask your broker or lender the following:
- how long they guarantee the preapproved rate
- if you will automatically get the lowest rate if interest rates go down while youre preapproved
- if the pre-approval can be extended
Ask your lender or broker about anything you dont understand.
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Whats A Mortgage Preapproval
A mortgage preapproval is a lender saying that theyve checked your finances and theyre willing to lend you up to a specific amount of money to buy a home.
The mortgage preapproval process helps determine how much an applicant can afford in the real estate market.
You may have carefully gone over your budget and did lots of calculating to figure out how much you can spend on a house, but you cant be 100% sure about your math until a mortgage lender tells you what theyd loan you.
After examining a borrowers financial history including income, assets, debt and credit score lenders can calculate an accurate maximum mortgage amount and an interest rate to go with it.
The lender puts all of that info in a preapproval letter that you can show to real estate agents and sellers.
What Documents You Need To Provide
The pre-approval process isnt as involved as a formal loan application to get a mortgage, which requires extensive documentation like income tax returns, drivers license, pay stubs, insurance forms, home owners association documents, mortgage statements, divorce records, Social Security record and bank statements.
Unfortunately, such busy work is just one of those hassles you have to accept if you want somebody to lend you hundreds of thousands of dollars.
The hassle isnt usually as bad with pre-approval. A lot depends on your financial situation and how much you are seeking to borrow. A loan officer will ask preliminary questions about your income and debts. They investigate your credit report and typically need documentation of employment and income. Sometimes further documentation is necessary, so its a good idea to have the pay stubs, tax returns and W-2s handy.
If everything checks out, you could have a pre-approval letter in your email within an hour. It is usually valid for 90 days.
When you find a house and its time to formally seek a loan, you do not have to use the lender who gave you pre-approval. Your pre-approval letter is conditional. It lets sellers know you have the means to buy a house.
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Adding A Proactive Prequalification To The Mix
If youre worried about getting a mortgage because of financial difficulties or your credit history, a proactive prequalification 6 12 months ahead of house hunting can be a smart move.
Use the prequalification to uncover any credit, debt or income issues. Checking this far ahead will give you enough time to work on any financial matters before you apply for preapproval. And because a prequalification is considered a soft pull, it wont affect your credit.
Even if youre confident about your score and your financials, you may still want to consider an early prequalification. At the very least, it can provide you with some extra peace of mind.
Where To Get Mortgage Pre
Mortgage pre-approvals are available from various lenders, including banks, caisses populaires, credit unions, mortgage companies, insurance and trust com-panies. You can also get them from mortgage brokers and websites. Here are some of the most common:
Mortgage brokers are not lenders but work on behalf of mortgage lenders as an intermediary between lenders and borrowers. They are licensed and monitored by federal and provincial bodies. Certain types of lenders only work through mortgage brokers. The brokers themselves tend to work with several mortgage lenders and will compare available offerings on your behalf to get you the best deal on your mortgage.
Make sure you ask which lenders your broker works with, as they may not have access to all lenders. You may also want to request pre-approvals from several brokers to ensure you have access to as many products as possible. They do not usually charge a fee for their services and instead receive a commission from the lenders they work with. This, too, is something to keep in mind when choosing a broker.
Comparison sites are a great tool you can use to do an initial assessment of lenders to get a sense of the variety of mortgage financing available to you and see who you may want to start a formal pre-approval with. Comparison sites can only give you a good idea of your financing options. They cannot provide you with an actual pre-approval.
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How Do I Get A Mortgage Pre
First, find out how much you can spend on a mortgage with our mortgage affordability calculator. Then book an appointment with us for more help. Meet with usOpens a new window in your browser..
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Dont forget, once you find your dream home, you need to complete a full application to be approved for a mortgage2.
Ensure you have all the documents necessary for the mortgage application process with our required mortgage documents checklist .Opens a new window in your browser.
Does Preapproval Affect Your Credit Score
Getting preapproved for a mortgage has an impact on your credit score. Thats because when lenders check your credit, they perform a hard inquiry, which can drop your score by a few points. The good news is that the effect is small, and gets even smaller as time passes: Hard inquiries come off your report entirely after two years.
If youre planning to get a preapproval from more than one lender, aim to do it within a 45-day window to avoid more damage to your score than necessary. Inquiries within this time frame will be counted as one inquiry, instead of multiple.
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Budget For A Down Payment
The more money you can put down, the lower the interest rate and monthly payments will be. If you put down less than 20% of the homes purchase price, youll have to pay for private mortgage insurance on top of the cost of the home loan.
The type of mortgage you apply for will affect how much of a down payment youll need. For example, for most mortgages, youll need to put down 3% to 20%. But if you qualify for a Federal Housing Administration loan, you can put down just 3.5%.
Credibles monthly mortgage payment calculator makes this easy. Simply enter your loan information below to see how much youll pay monthly and over the life of the loan.
Enter your loan information to calculate how much you could pay
Checking rates won’t affect your credit score
Understand The Difference Between Pre
A mortgage pre-qualification is often a basic financial evaluation. A TD mortgage pre-approval on the other hand, is in-depth. It includes a more thorough assessment of your finances. It also offers a rate hold of up to 120 days , while a pre-qualification does not. Plus, if you apply for a TD mortgage pre-approval online, it has no impact on your credit score. These benefits make a pre-approval an important part of the mortgage process.
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The Buyers Credit Score Dropped Below The Minimum
Mortgage pre-approvals are test runs for a buyers actual mortgage approval. So, if the buyers credit score drops before finding a home, the buyers pre-approval may be invalidated.
In general, the minimum credit score requirements are:
- FHA: 500 credit score
Learn more about how to fix your credit score to buy a home.
Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our mortgage reporters and editors focus on the points consumers care about most the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more so you can feel confident when you make decisions as a homebuyer and a homeowner.
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Take Stock Of Your Finances
Most lenders determine what mortgage loan amount you can get by applying the 28/36 rule. According to the rule, your monthly mortgage payment should be no more than 28% or less of your gross monthly income. You should also only spend 36% of your gross income on all your debts, including your mortgage and other recurring debts, such as a car or student loan payments.
For example, if you earn $3,500 a month pretax, your monthly mortgage payment should be no higher than $980, which would be 28% of your monthly income. Some lenders may let you borrow more, but experts say its best to avoid taking on a larger payment so that you dont stretch your finances too thin and risk falling behind on your mortgage.
To avoid surprises, take a close look at your household income, monthly expenses, investment bank accounts, and credit score before applying for preapproval. Youre entitled to a free copy of your report from each of the three major credit bureaus Equifax, Experian, and TransUnion at AnnualCreditReport.com.
This process will also help you determine how much youre comfortable spending each month, which may be less than what a lender will offer, and how large a down payment you can make.
The Buyers Employer Or Job Title Changed
Changing jobs even for higher pay can ruin your pre-approved mortgage.
If you plan to make any of the following changes in your job or career, ask your mortgage lender before making the change:
- Becoming a partner in a company
- Starting a new business
- Switching from a salaried position to a salary + bonus position
- Changing industries
- Accepting payment in cryptocurrency
Its okay to make changes in your career. Be sure to speak with your lender to avoid unintended consequences.
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