Getting pre-approved for a mortgage is a crucial first step in home buying. Many potential first time home buyers make the mistake of running out to look at homes before getting pre-approved for a first time home buyer mortgage. This is understandable but is a mistake. A mortgage pre-approval is necessary for two reasons. First, it tells sellers that you are a qualified buyer and can potentially close on the home you are looking at. Most sellers and seller’s agents only want to deal with buyers who either have proof of cash funds or have a pre-approval letter from a mortgage company.
1st Time Home Buyers have many attractive mortgage programs to choose from.
Second, a mortgage pre-approval is important because it tells you how much home you can afford to buy, based upon your income, debt to income ratio, credit score and other factors. This way, you know which homes are in your price range, so you do not waste time looking at a home beyond your budget. A mortgage pre-approval letter will be provided to you from your mortgage lender once they have verified your income, job, credit and debt to income ratio. The pre-approval letter will state how much you are approved for. Remember that a pre-approval does not guarantee loan approval, and generally is valid for only 60 or 90 days.
4 Steps for First Time Home Buyers to be Pre-Approved for Mortgage
To get pre-approved for a first time home buyer program, here are the steps involved:
#1 Verify Your Credit Score
Before you do anything else, such as contact a lender, get a copy of your credit report online. See what your score is, and check for any mistakes that are affecting your score. At least 20% of consumers have mistakes on their credit reports. Some of those mistakes could lower your score. For example, a negative item could be erroneously reported twice. Or, someone might have opened a credit card in your name and damaged your credit. If you find anything that you think is a mistake, you can dispute it with the credit bureau. If you have not yet established credit, consider a home loan with no credit score required,
#2 Collect Your Income Information
Be ready to supply the lender with your pay stubs, two years of tax returns and W-2s for the past two years. You also should collect any information that shows income from other sources, such as a second job, overtime, commissions, Social Security income, alimony, etc. If you are self-employed, you should show two years of tax returns and a current profit and loss statement for the year to date.
#3 Organize Your Asset Information
The mortgage lender will want to see any other assets you have besides your income. This can include your bank statements, 401k and IRA statements, and any other assets you own, such as real estate. If your relative is going to provide you with cash for a down payment, you should get a gift letter from them stating this is a gift and is not a loan.
#4 Collect Your Personal Information
You need to have official ID to apply for a pre-approved mortgage. This is usually a driver’s license or passport. You also have to give your Social Security number to have your credit checked. Your lender will ask you to sign a document authorizing them to pull your credit. After you have provided all of this information, it is up to the lender to pre-approve you or not. The pre-approval process can take anywhere from a few days to a few weeks. You can try to be pre-approved from other lenders within 45 days without the multiple inquiries affecting your credit. So, feel free to see what you can qualify for with other lenders.
After you have been pre-approved, you then should go look at homes that are within your price range. Once you have found a home that you want to make an offer on, let your lender know. At that point, you can move into the full application process. Your file will be sent to underwriting where underwriters will make the official decision about whether the loan will be approved or denied. If you have been pre-approved, you will usually be approved for the loan in the end. That is not to say there will not be some bumps along the way. It is very common for underwriters to request more information from you during this process. If you had a late payment on a credit card last year, they may want a written explanation for it. Or, perhaps you are self-employed and changed the focus of your business last year. The underwriter may want you to explain why the change was made and what your prospects are for the future in your business.
Takeaway on Getting Pre-Approved for Your First Mortgage
Securing approval for your first mortgage is a pivotal step in realizing homeownership. To enhance your chances, start by assessing your credit report and addressing any discrepancies or outstanding issues.
A higher credit score generally leads to more favorable mortgage terms. Saving for a substantial down payment is crucial; it not only demonstrates financial responsibility but can also result in more favorable interest rates. Additionally, evaluate your debt-to-income ratio, as lenders often favor applicants with lower ratios. Research various mortgage options and lenders to find the most suitable terms and interest rates.
Prioritize getting pre-approved, a process where lenders assess your financial health and provide an estimate of the loan amount you qualify for. While considering loan options, opt for one that aligns with your financial capacity and future goals.
Lastly, maintain financial stability throughout the mortgage application process, refraining from large purchases or significant changes in income that may affect your eligibility. Seeking guidance from a mortgage professional can further streamline the process and increase your chances of securing approval for your first mortgage.
The bottom line is the pre-approval process is important for the first-time home buyer to eventually be approved for a mortgage. So, be sure that you do not neglect this vital part of the home buyer process.