Prequalify Is Not The Same As Pre
First-time home buyers should note that mortgage pre-qualification is not the same as pre-approval. Pre-qualification is a conditional approval of the mortgage an estimate of how large a mortgage one can afford. However, it doesn’t create a binding commitment between the home-buyer and the lender. Pre-approval, on the other hand, involves a detailed review of applicant’s debt, income, assets and credit history and the borrower can receive a Pre-Approval Letter documenting the amount that the borrower has been approved to borrow. To learn more about differences between Pre-approval and Pre-qualification, read Stem Lending’s article: Mortgage 101: Pre-approval vs. Pre-qualification Letter.
To take the first step in getting prequalified for a mortgage and save on your mortgage, contact Stem Lending team for a free 30-minute consultation:
What To Bring To Your In
We want you to be ready for the pre-approval process and being prepared will help. For your meeting, you should plan to bring the following:
- Current address
- Previous address
- Current employment information
- Previous employment information
- If self-employed, the last 2 years Notice of Assessments from your Income Tax return
- Value of properties, automobiles, investments, and savings
- Most recent statements for mortgages, loans and lines of credit
- Most recent credit card statements
- Estimated value of your home
- Housing expenses
- Financial information for your co-borrower, if applicable
- Social Insurance Number
Increase Your Credit Score
The higher your credit score, the lower your loan fees and better your interest rate will be. While many government-backed loans accept a score of 620, you may be asked to increase your down payment to compensate for the risk the lender takes. If you wish to purchase a home in the near future and dont have the time it takes to increase your credit score, offer proof of a high income, a co-signer or a large down payment in order to prequalify.
Don’t Miss: Can You Get A Mortgage While In Chapter 13
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.
Mortgage Prequalification: A Good First Step
Getting prequalified at the start of your home-buying journey is a quick, easy way to see how much you may be able to qualify to borrow for a mortgage. All you need to do is give your lender some basic financial information like your estimated household income and debt and youll get your estimated price range in minutes online.
And depending on the type of prequalification the information you provide may not go through the process of getting verified by the lender, so it may not affect your credit score. But its also wise to recognize that the amount you may qualify to borrow may be more than youll want to spend .
What Happens If The Rate Lock Or Commitment Expires
If your interest rate lock expires before you close on the loan, there may be a price adjustment on the loan. If the commitment expires before you can close, you may need to resubmit documents and go through another credit approval to get a new mortgage commitment. This could result in a delay in the process and may change your loan terms, like how much you pay each month or how much you qualify for.
Who Gets A Mortgage
According to statistics, 62.9% of homes between 2008 and 2017 were brought through a mortgage. This number shows how many people rely on a mortgage to afford real estate.
62.9% of homes between 2008 and 2017 were brought through a mortgage.
A mortgage is a necessity for individuals who cant afford the full price of a house with cash but do you know that there are other cases where getting a mortgage makes more sense?
Investors, for example, often choose to get a mortgage when buying real estate properties as this will free up their financial resources for other investments.
For you to qualify for a mortgage, you need to meet specific criteria first. For starters, you need to have a stable and reliable income, a debt-to-income ratio of 43% of your monthly income, and a good credit score.
Recommended Reading: Can You Get A Reverse Mortgage On A Manufactured Home
Improve Your Purchasing Power: Pre
Pre Qualify For A MortgageFAST, EASY, APPROVED!
The banks will no longer pre qualify people for mortgages because less than 1% of the people stayed with the bank that pre-approved them. At best, a lender will take a quick look at the application for any obvious problems and issue a rate hold. They still call it a pre-approved mortgage, but in reality it is no more than reserving your rate for 90 days or so.
From a consumers point of view this presents a problem. You could go through the whole process of finding a home, make an offer and commit yourself emotionally, only to find out in the end that your mortgage might not come through.
Save For A Down Payment
The absolute minimum down payment required by an official loan is about 3%. Of course, this means that even with an affordable home valued at $60,000, you are looking at paying $1,800. Conventional loans require 20%, and if you do not have that, you will need PMI insurance of about 1% on the outstanding loan. This private mortgage insurance makes sure your lender receives payment should you default. Certainly, the larger the down payment you can save, the better chances of getting prequalified for the home you want.
You May Like: Can I Get A Mortgage Before I Sell My House
What To Provide To Your Lender Or Mortgage Broker
Before preapproving you, a lender or mortgage broker will look at:
- your assets
- your income
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 (for example, a recent pay stub
- 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:
How To Get Preapproved For A Mortgage
The preapproval process is essentially a mortgage application. This means your lender will want to take a comprehensive look at your finances. You should be prepared to provide information on the following:
- Proof of income
- Debt-to-income ratio
Before starting the preapproval process, you’ll want the necessary documentation to ensure the process goes smoothly. Here are a few items you should have on hand:
- W-2 statements
- Social Security number
Once you’ve submitted all your information to the lender, you can expect to receive your loan estimate within 3 business days, though this may be much shorter if you use an online lender. The loan estimate will let you know whether you’ve been preapproved and for how much.
Recommended Reading: Can I Have Multiple Mortgages
How Long Does Prequalification Or Preapproval Take
Aside from their distinct roles in homebuying, prequalification and preapproval can take different amounts of time. Prequalifying at Bank of America is a quick process that can be done online, and you may get results within an hour. For mortgage preapproval, youll need to supply more information so the application is likely to take more time. You should receive your preapproval letter within 10 business days after youve provided all requested information.
How Does A Mortgage Prequalification Affect Your Credit
As with other loan types, getting prequalified for a mortgage won’t hurt your credit score. That’s because the lender will typically run just a soft credit inquiry, which will show up on your credit report but won’t impact your credit score.
If you decide to move forward to get preapproved, though, expect a hard credit check, which can impact your credit score negatively, if only by a little.
Before you start this process, it’s crucial to speak with your mortgage lender or broker to make sure you understand what you’re agreeing to with prequalification. The last thing you want is a surprise hard inquiry when you thought your credit score was safe.
Recommended Reading: How Much Does Refinancing A Mortgage Cost
How A Mortgage Calculator Helps You
Determining what your monthly house payment will be is an important part of figuring out how much house you can afford. That monthly payment is likely to be the biggest part of your cost of living.
Using NerdWallets mortgage calculator lets you estimate your mortgage payment when you buy a home or refinance. You can change loan details in the calculator to run scenarios. The calculator can help you decide:
How Long Preapproval Lasts
Preapproval doesn’t last forever. Check your expiration date and keep it in mind as you look at homes. Though it varies from lender to lender, preapproval is typically valid for 60 90 days. If you haven’t settled on a house, you can request a renewal by giving your lender your most up-to-date financial and credit information.
The right home is out there.
Find it online at RocketHomes.com.
Don’t Miss: How Do Mortgage Payments Work
Gather The Information Youll Need
Depending on where you get your pre-approval letter, traditional lenders require you to upload your documents upfront.
But if you choose to get an instant streamlined pre-approval letter online with Credible, the process is much quicker. To receive your letter, youll just need to have your information on hand so you can enter it into the signup form.
Heres some of the information you should have ready:
- Proof of income: Such as pay stubs or W-2 forms
- Federal income tax returns: Your tax returns for the past two years
- Bank and investment account statements: Bank and investment account statements that show your current balances and contributions
- Drivers license or passport: Some form of identification
- Debt statements: Any outstanding debt statements that show your remaining balance and monthly payment, like student loans
What Should I Get Preapproved
In todays housing market, it will be almost impossible to get a seller to consider your offer unless you have a mortgage preapproval . There are simply too many buyers for sellers to be willing to take a chance on one who hasnt at least talked to a lender about getting a mortgage.
Another important reason to get preapproved: It gives you an idea of how much home you can afford based on how much money a lender is prepared to let you borrow. This can save you time during house hunting by eliminating properties out of your price range.
Also Check: How Much Is A Habitat For Humanity Mortgage
A Mortgage Preapproval Is A Letter From A Lender Saying That Its Tentatively Willing To Lend You A Certain Amount For A House
Getting preapproved for a mortgage is a crucial first step in the home-buying process. It gives you an idea of how much you can borrow, which will help narrow down your search to houses in your price range. The preapproval process could also uncover potential issues that would prevent you from getting a mortgage, so you can work them out before setting your heart on a house.
A mortgage preapproval lets sellers know you have the borrowing power to back up an offer you make to buy their home, which could make your offer more competitive. It tells real estate agents, who work on commission, that spending time on you could well pay off with a transaction. And it alerts lenders that youre a savvy borrower who may soon be taking out a mortgage loan.
In short, getting preapproved for a mortgage signals that youre serious about buying a home.
Fortunately, getting preapproved is relatively quick and simple. Lets explore what you need to do for a mortgage preapproval and how it can benefit you during the home-buying process.
Why You Should Get Pre
Congratulations! Making your first home purchase is a significant achievement and likely the biggest investment youll make in your lifetime. But as any homeowner can attest to, the process of buying a home whether its your first or fourth can be a complex, stressful process. Navigating your financial path to homeownership requires extensive planning and preparation. How large a mortgage will you need? Should you go for a fixed or variable interest rate? Should you consult a bank or a broker? Theres a lot to learn and decide upon before youve even started scoping out open houses!
One step that makes the home buying process a little easier is getting pre-approved for a mortgage. Pre-approval can simplify your home search in many ways and give you a better feel for your budget.
Here are some things you need to know about mortgage pre-approval and why you should be considering one if youre preparing to enter the real estate market.
Recommended Reading: How To Understand Mortgage Payments
Your Mortgage Lender Completes The Pre
Once youve filled out yourpre-approval application, turned in your documents, and paid your applicationfee , your work is done. The last step, underwriting, is upto your lender.
Most lenders use a universalautomated underwriting system to pre-approve customers for home loans.AUS is a technology-driven underwriting process that provides acomputer-generated loan decision.
In other words: You dont have towait for a human underwriter to read through all thosedocuments and approve or deny you.
There’s No Need To Choose A Lender Just Yet
Getting preapproved is important because it helps you shop for a home. But at this stage, lenders arent in a position to give you enough information for you to make a decision about which lender offers the best deal. Getting a preapproval doesnt commit you to using that lender for your loan. Wait to decide on a lender until you’ve made an offer on a house and received official Loan Estimates from each of your potential lenders.
Also Check: How Does A Conventional Mortgage Work
How Is Prequalification Determined
Looking at income is just one of the components that is used to determine your buying power. Your monthly debt gets used as true measure against your monthly gross income when it comes to financial institutions. Most lenders feel comfortable with applicants who have less than a 36% debt-to-income ratio or a DTI. PropertyNests Prequalification Mortgage calculator also factors in the DTI to approximate your buying power.
When To Go For A Prequalification And When To Wait
When it is time to prequalify for a mortgage, the process can be confusing. Some people go and get a prequalification as soon as they start searching for a home, but others wait until they start looking at homes because they are more likely to get approved. When it comes down to it, you should always compare your rate to what you are able to pay on the home loan with your credit score before deciding whether you want to try for a prequalification or wait.
If youre looking to buy a home, it is important that you understand what a prequalification is and when you should go for one. A prequalification allows your lender to get a sense of your income and credit history before they decide whether or not to provide a loan. You will only be able to go through the process once with this lender so make sure that you are comfortable with their lending guidelines before going through with the process.
What Does A Mortgage Pre
A mortgage pre-approval letter shows you how much a lender is willing to let you borrow. Itll typically include the following information:
- Purchase price
- Expiration date
- Interest rate
Credibles streamlined pre-approval letter is similar. In our letter, youll see the purchase price, loan amount, and expiration of the pre-approval based on the information you provided us. You can see an example of this below. A full copy of the pre-approval letter will also list the steps youll need to take should you find a home and want to move forward with Credible.
How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
At Bankrate we strive to help you make smarter financial decisions. While we adhere to stricteditorial integrity, this post may contain references to products from our partners. Heres an explanation forhow we make money.
You May Like: How To Become A Certified Mortgage Underwriter