So, you were recently pre-approved for a mortgage. Congratulations! But don’t pop the champagne until closing day and all the home loan documents are signed and recorded. Despite what you might hear, there are plenty of things you can do to kill your mortgage approval before closing day.
How to Get a Pre-Approved Mortgage When Buying a Home
Purchasing a home is a significant financial decision, and one of the first steps in the home-buying process is getting pre-approved for a mortgage. The mortgage pre-approval provides you with a clear understanding of how much home you can afford and sets the stage for a successful home purchase. In this comprehensive guide, we’ll walk you through the steps to obtain a pre-approved mortgage when buying a home.
1. Assess Your Financial Situation
Before you start the pre-approval process, take a close look at your finances. Calculate your monthly income, expenses, and outstanding debts. Understanding your financial health is crucial when determining how much you can afford for a home.
2. Check Your Credit Score Before Requesting a Mortgage Pre-Approval
Your credit score plays a pivotal role in the pre-approval process. Request your credit report from all three major credit bureaus (Experian, Equifax, and TransUnion) and review it for errors. A higher credit score can lead to better mortgage rates, terms and a quicker mortgage preapproval. If you are unaware of your credit scores you may have to consider a no credit home loan which typically carries a higher interest rate with additional restrictions and closing costs.
3. Improve Your Credit Score
If your credit score is lower than desired, take steps to improve it. Pay down outstanding debts, correct any inaccuracies on your credit report, and ensure you pay all bills on time.
4. Gather Financial Documentation to Get Pre-Approved
Lenders will require various financial documents to assess your eligibility for a home loan that equates to a mortgage preapproval.
These documents typically include:
- W-2 forms or tax returns for the past two years
- Recent pay stubs
- Bank statements
- Documentation of other assets
- Proof of any other sources of income
- Information on outstanding debts
5. Choose a Mortgage Lender that Offers Mortgage Pre Approvals
Research and select a mortgage lender that aligns with your financial needs and goals. You can choose from traditional banks, credit unions, or online mortgage lenders. It’s a good idea to compare offers from different lenders to secure the best terms.
6. Get Pre-Qualified for a Home Loan
Pre-qualification is an informal estimate of how much you may be able to borrow based on your income, credit score, and other financial information. While pre-qualification for a home loan can provide a rough idea of your buying power, it’s not as strong as mortgage preapproval letter.
7. Pursue Mortgage Pre-Approval
Mortgage pre-approval is a more thorough process than pre-qualification. It involves submitting your financial documents to the lender for a comprehensive assessment. The lender will check your credit, verify your income, and assess your debt-to-income ratio.
8. Complete the Mortgage Application
To begin the pre-approval process, you’ll need to fill out a mortgage application. You can often do this online or in person, depending on the lender. The application requires detailed information about your finances, employment history, and the property you plan to purchase.
9. Provide Necessary Documents
Submit all the required documents as requested by your lender. This may include W-2s, tax returns, pay stubs, bank statements, and more. Be prompt in providing these documents to keep the process moving smoothly.
10. Review and Sign the Pre-Approval Mortgage Letter
– Once your lender has reviewed your application and documents, you will receive a pre-approval letter. This letter outlines the loan amount you are pre-approved for, the interest rate, and other terms. Review the mortgage preapproval letter carefully and, if you agree, sign and return it to the lender.
11. Real Estate Agent Engagement
– With your pre-approval letter in hand, you can engage a real estate agent to start shopping for a home. Your agent will use the pre-approval letter to help you find properties within your budget.
12. Shop for Your Dream Home:
– Work closely with your real estate agent to identify properties that match your criteria and budget. The pre-approval letter demonstrates to sellers that you are a serious buyer, which can be advantageous in competitive real estate markets.
13. Make an Offer
– Once you find a home you love, work with your real estate agent to submit an offer to the seller. The fact that you’re pre-approved can make your offer more attractive to sellers.
14. Finalize Your Mortgage
– After your offer is accepted, work closely with your lender to complete the mortgage application process. This includes tasks like an appraisal, a home inspection, and final underwriting.
15. Close the Deal
– After all conditions are met, you’ll attend the closing of your home purchase. At this stage, the mortgage documents are signed, and you officially become a homeowner.
Mortgage pre-approval is a crucial step in the home-buying journey, as it helps you understand your budget, simplifies the shopping process, and makes your offer more appealing to sellers. Be sure to work with a trusted lender and a skilled real estate agent to navigate the home buying and preapproved for a mortgage process smoothly.
7 Things to Kill Your Mortgage Pre Approval Online
1. The Home Loan Commitment
You might not have heard about this one, but it is important. Since the housing crash, there have been many changes in loan regulations and the accompanying documents. You should carefully review your loan commitment, so you are aware of any conditions for final approval of the mortgage.
For example, you may need to provide more information about gaps in your income history, an explanation for where the down payment came from and your final salary numbers for last year.
These might seem like pesky details, but federal regulators have really cracked down on lending practices in the last several years. The government wants to be certain lenders are really verifying that people can pay their mortgages. The last crash happened because lenders were not carefully checking that people had the income to afford their mortgages.
2. Confusing Loan Approval Amount with What You Can Afford
If you get approved for a $300,000 mortgage, it does not really mean you can get a home for $300,000. The spending limit is probably less than that; your monthly payment will include a lot of extras, such as homeowner’s insurance, taxes, and private mortgage insurance.
It also is important to have an emergency fund to cover major repairs.
Whatever amount you have been approved for, it is a good idea to determine a monthly payment that you are comfortable with that is well below the maximum. That way you will not be financially stressed in the coming years as repairs and extra expenses come up.
3. Paper Trail Problems with Income
When you are buying a home, you probably are looking for extra cash wherever you can get it – from bonuses to help from your parents in some cases. But with the state of lending laws today, you want to be careful to have a good paper trail for every dollar that is not coming from your regular, monthly income. So, any cash deposits or checks that are not a part of your regular paychecks will need to be explained with paperwork.
If you get some help with your down payment from in laws, for example, this is generally ok, but you will need to have it documented that it is a gift and not a loan. This will be needed for the mortgage file.
4. Assuming It Will Be Easy as a Repeat Home Buyer
Whether you get your loan finally approved or not comes down to the underwriter decision. No matter who you are or how many times you have bought a home, the underwriter is required by law to evaluate your credit, capability, collateral and character.
Underwriters don’t, and can’t, make any allowances for repeat buyers, or for new buyers for that matter. Underwriting is closely regulated by federal law, and the number of homes you have bought before is not part of the equation.
5. Making Major Purchases
Until you have signed everything at the closing table and those documents have been recorded with the local government, the mortgage lender is largely in charge of your financial situation. So, you should not make major purchases on credit cards, nor should you go out and buy a $100,000 yacht on credit. Anything that will lower your credit score and affect your debt to income ratios is not something you want to do until the loan is really done. The lender is required to recheck your credit right before closing, so make sure nothing has changed on your credit report.
6. Paying Bills Late
You would be surprised probably, but more than a few people get a mortgage pre-approval and then slip up and pay bills late. If you get any black marks on your credit report before you close the loan, that could derail the entire deal eliminate the ability t get preapproved for a mortgage.
7. Getting New Credit
When you have your pre-approval, now is NOT the time to go get new credit cards or a car loan. Let it wait until the loan is final and you have moved into your new home. Also, every time you apply for credit, it lowers your credit score. That is the last thing you want when you are getting a mortgage.
Securing a pre-approval is a valuable initial stride when embarking on the path to homeownership. After thorough verification of your financial details, you’ll gain a precise understanding of your affordable home range. Obtaining mortgage pre-approval before commencing your house search proves advantageous for all parties engaged in the process. If you make sure that you do not do any of the above mistakes when you are getting your mortgage, the chances of getting final approval and the keys to the front door are much higher!