What Are The Benefits Of Having A Mortgage Pre
Qualifying for a mortgage pre-approval has several benefits:
How Do You Get Pre
Pre-approval starts with a meeting with your financial lender, or whoever you expect will provide you with a loan for your mortgage. Many homebuyers often turn to their banks or credit unions for a mortgage because they can easily access and verify their financial documents. You will want to come prepared for this meeting and have your financial documents in order already, otherwise you will delay the approval process.
As a general rule of thumb, there are five things you need in order to get pre-approved:
- Proof of income: You will need W-2 statements from the past two years, recent pay stubs, and other documents that prove your income like past tax returns.
- Proof of assets: These include bank statements and other investment statements that prove that you have enough cash on hand to cover the cost of a down payment, closing costs, and other home-buying expenses.
- Good credit: Most lenders expect you to have a credit score of 620 or above to buy a home, though some may require a score above 760 for certain loans.
- Employment verification: This goes along with your pay stubs. Your lender will likely call your employer and previous employer to verify that you work there to confirm that the documents are accurate.
- Miscellaneous documentation: You may need additional documents if you are self-employed or need a specific type of loan.
Your loan officer may give you a checklist of items that you need before you meet with them for pre-approval.
Preparing For The Preapproval Process
Before contacting a lender, buyers should visit AnnualCreditReport.com to obtain a free copy of their credit reports from the three national credit bureaus . Buyers can save both themselves and their lenders some time if they can identifyand attempt to correctany errors or major deficiencies in their credit history. Some mortgage lenders recommend reaching out to them as early as 12 months before a buyer plans to buy a home for these same reasons.
Reaching out to a lender 12 months in advance may seem too early, says Christopher Jordan, branch manager for Main Street Home Loans in Silver Spring, Maryland. But if theres anything you need to work on, it gives us time to prepare. A credit issue may take four to six months to fix, and we want to make sure that we build enough time into the purchase process.
The extra time also comes in handy for gathering the financial documents a lender needs to issue the preapproval letter. The list can be long. In many cases, the buyer may not have looked at or accessed the files in years. Heres a sampling of the paperwork that a buyer may need to provide:
- Copy of your Social Security card
- Employment W-2 forms from multiple years
- Pay stubs
- Recent statements for every bank and investment account
- Tax returns from at least the past two years
You May Like: What To Look Out For With Mortgage Lenders
Why Its So Important To Get Pre
As you get ready to buy a new home, not only do you need to hire a realtor, put your current home on the market and go to open houses, but youll also have to figure out where you want to move to if you dont already have a specific area in mindas well as pick a few alternative neighborhoods just in case for-sale properties are scarce or the homes are out of your price range in your preferred location.
So, when someone tells you that you should also find the time to get pre-approved for a mortgage, you may not be so susceptible to the idea, especially if youve never purchased a home before and do not yet realize why its a significant part of the home-buying process.
But there are many reasons why its important to get pre-approved for a mortgage.
How Long Does It Take To Get Preapproved
Depending on the mortgage lender you work with and whether you qualify, you could get a preapproval in as little as one business day, but it usually takes a few days or even a week to receive and, if you have to undergo an income audit or other verifications, it can take longer than that. In general, if you have your paperwork in order and your credit and finances look good, its possible to get a preapproval quickly.
You May Like: How To Pay 15 Year Mortgage Off Early
Youll Accelerate The Home
A pre-approval allows you to move faster when youre ready to make an offer. A mortgage pre-approval gets your foot in the door when it comes to competing with other buyers for your dream home.
Talk to a loan officer today about getting a leg-up in the housing market by securing a pre-approval loan.
Avoid Disappointment And Frustration
When you think about applying for a pre-approval, you may be intimidated by all that are involved. From digging out your tax returns to proving your income, it can be a lot to take in at once.
However, this shouldnt be a reason to postpone doing the pre-approval until you actually find a home that you like. To avoid disappointment and frustration, you should embrace your inner-strength and put all of your documents together. Once you have done this, youll likely find that the process isnt as intimidating as you thought it would be.
After the application is completed and youve been pre-approved, you will know exactly what your realistic budget for a home and taxes is. This means you wont waste time looking at listings that are far outside of your budget, such as homes that cost $400,000 whereas youre only approved for $350,000.
Ultimately this saves you from disappointment when home buying, making it clear why real estate agents request you do this from the very start. By doing something as simple as applying for pre-approval now, you will do yourself a great service that will make shopping for a home easier down the road.
Don’t Miss: Can I Roll My Down Payment Into My Mortgage
There Is No Obligation
Just because you’re preapproved doesn’t necessarily mean you have to borrow that money. The term “pre-approved” is not binding from neither side of the deal. Lenders feel the liberty to send marketing materials that mention that you are pre-approved but when you call them then they start over the process and you might not be approved. From you side, youre just gathering information. If you find a better offer from another lender, you can take it.
Likewise, the lender might not actually make a loan that you’ve been preapproved for. There shouldn’t be any problems if you and the lender have been thorough in the preapproval process, but loans can sometimes fall through.
You can reduce the chances of problems by making sure the loan-to-value ratio is acceptable to the lender. For home purchases, it may also be important for an appraiser to value the property value at a level thats high enough for your ratios to work.
Make sure that lenders can verify your income and assets available to repay the loan. Gather paystubs and other details about your compensation, and be ready to provide account statements.
If youre getting an auto loan, verify that any dealers youre shopping with can work with the lender you’ve chosen.
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.
Also Check: How Does The Interest Work On A Mortgage
Limit Your Debt And Stay Current On Your Bills
Your pre-approval is dependent on several factors, such as your:
- Down payment
- Employment history
Between your pre-approval and your loan application, try to keep your debt levels steady, or pay off the debt if possible. Running up credit card debt or taking out a loan could negatively affect your credit score and debt-to-income ratio, reducing how much you can borrow in the form of a mortgage.
Its also a good idea to ensure your income remains the same so be sure you have the same employer and income throughout the process.
Your credit score is largely determined by your payment history, as well. So, to avoid a decrease in your credit score which could ruin your mortgage pre-approval make sure you make all of your payments on time during the entire mortgage process.
Good to know:
Finally, to improve your chances of getting pre-approved for a home loan, make sure youre putting down a sizable down payment. The more you put down, the less youll need to borrow from a lender.
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.
Don’t Miss: How Much Is Personal Mortgage Insurance
Save For Down Payment And Closing Costs
First, before you even think about buying a house, save as much money as you can for a down payment.
The bigger down payment you can make and the better your credit score is, the better your mortgage terms are going to be.
Make sure to also set aside money for a closing cost. Closing costs on homes differ but can be about 2 grand one $200,000 home.
The more money you have saved to start, the less of a burden acquiring your mortgage and buying your house will be.
Related: How Long Does It Take to Close on a House?
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.
Read Also: What Is A Single Purpose Reverse Mortgage
What Information Is Needed To Get A Mortgage Pre
Along with basic personal information like your name, address, birth date, occupation, martial status, and dependents, youll need to provide your lender with the following:
- Bank accounts, branch information, balances, and debts
- Debt details: Credit card information, lines of credit, child or spousal support, student loans, personal loans, etc.
- The source of your down payment
- Consent to run a credit history search, as well as a credit check
- Information on your current home
- Proof of employment, including a job letter stating youre off probation if you recently started your position
Bmo Bank Of Montreal Mortgage Pre
You can apply for aBMO mortgage pre-approvalonline, in-person at a local branch, or through a mobile mortgage specialist. You will be asked to provide information on your liabilities, assets, valid ID, and employment. Your application will be reviewed and results are typically released to you in one to two days.
BMO locks your offered interest-rate and term for up to 130 days given that you meet the provided conditions. You are also allowed to get pre-approval from multiple lenders although each pre-approval may affect your credit score. If you are new to Canada, you may be able to apply depending on where you have lived, financial information, and how long you have stayed but you must visit your local branch or contact a mortgage specialist to confirm.
Recommended Reading: How Much Mortgage On 200k
What To Do If A Lender Refuses Your Mortgage Application
A lender could refuse you for a mortgage even if youve been preapproved.
Before a lender approves your loan, theyll verify that the property you want meets certain standards. These standards will vary from lender to lender.
Each lender sets their own lending guidelines and policies. A lender may refuse to grant you a mortgage if you have a poor credit history. There may be other reasons. If you dont get a mortgage, ask your lender about other options available to you.
Other options may include:
- approving you for a lower mortgage amount
- charging you a higher interest rate on the mortgage
- requiring that you provide a larger down payment
- requiring that someone co-sign with you on the mortgage
Reasons To Get A Mortgage Pre
If youre soon to be undertaking the process of buying a home, then theres a strong chance at least someone has suggested that you get a mortgage pre-approval. And as it turns out, there are a lot of good reasons as to why you should do so.
A mortgage pre-approval is a statement from a lender that says you are qualified to borrow up to a certain amount. It also includes a specific pre-approved interest rate, though this number can change depending on how soon you put in an offer on a home since mortgage rates are variable. To come up with the promised loan amount, lenders take into consideration the same factors they would consider for a traditional mortgage approval, including your debt to income ratio and your credit score. The better your financial situation looks, the more youll be pre-approved to borrow.
So why is that piece of paper so key? In this article, well go over four of the biggest reasons why getting a mortgage pre-approval is important for buyers.
Don’t Miss: How To Mortgage Property In Monopoly
You Know Your Numbers
The first step to buying a home is knowing how much you can afford. The preapproval process is the best way to discover what your magic number is. Since lenders review your financial history, including current income and expenses, theyre able to provide a realistic amount of what you can afford. While online calculators and pre-qualifications are helpful for getting a general idea of your purchasing ability, lenders may spot something you overlooked and can provide a more accurate review.
Reasons You Should Get Pre
Its one of the most common home-buyer questions: should I get pre-approved for a mortgage? Here, well discuss the top five benefits of obtaining pre-approval.
Are you ready to dive into the home hunt? If so, there are a few things you can do to pave the way toward a smooth purchase. Finding the right real estate agent is one. Determining your price range is another. But theres another step that many home buyers overlookespecially first-timers. Were talking about getting pre-approved for a mortgage.
If youre unsure about whether you need pre-approval, consider these five key benefits of completing the process.
Also Check: What Does A Co Signer Do For A Mortgage
