Mortgage preapproval is an essential first step for any prospective homebuyer. It provides buyers with peace of mind as they explore various properties without fear of costly and frustrating setbacks that could delay or prevent the sale.
The pre-approval process begins with a lender reviewing the borrower’s financial situation to determine their mortgage loan options and price range. This involves verifying information such as credit score, debt-to-income ratio, and employment history.
Once a lender has reviewed all your documentation, they will issue you with a pre-approval letter indicating their approval of your mortgage application. This document should remain valid for 30 to 90 days; thus, it’s wise to check its expiration date prior to searching for a home so you can keep it in mind while you shop around.
When searching for a home, it’s wise to contact several lenders in order to compare mortgage rates and find the most advantageous offer. Doing this allows you to ensure your monthly mortgage payment fits within your budget, which will reduce stress levels significantly.
If you’ve had credit issues in the past, it’s essential to know that lenders will still consider you for a mortgage loan. They may just need more evidence that you are dedicated to making payments on time and that any financial issues are behind you.
Your debt-to-income ratio (DTI) is one of the key elements in getting mortgage approval. To calculate it, take all your monthly obligations and divide them by your income. Ideally, your DTI should be lower than 35% to meet lender standards.
You’ll need to provide W-2s, tax returns and other documents proving your income. It is wise to prepare these ahead of time so your lender can review them quickly.
It’s wise to be up front with your real estate agent about the amount of money you can afford. If preapproval came in lower than anticipated, discuss this with them and figure out why so that you can adjust your home-buying budget accordingly.
Mortgage loans are an important financial commitment, so it’s wise to find a lender who provides the type of mortgage best suited for you. Some loans, like government-backed ones, may have more relaxed borrowing criteria than others.
Credit reports obtained from the three major bureaus (Equifax, Experian and TransUnion) are essential elements in the mortgage preapproval process. A good report can help lenders approve your loan faster, giving you a greater opportunity to secure the mortgage you require.
Your credit score is a three-digit number lenders use to assess whether you qualify for a mortgage and how much they might approve you for. Lenders generally favor those borrowers with credit scores above 670.
In general, the higher your credit score is, the better positioned you are to get a mortgage loan at an advantageous rate. But there are other factors that must also be taken into account; so be sure to ask your lender any questions regarding how your credit score affects pre-approval.