Things You Need to Be Pre-approved for a Mortgage
Having a house, apartment, or condo to call home is a dream for many Americans. They want to own their place and make it beautiful, functional, and warm. But before you start looking at houses and condos, there are several things you need to consider and besides all other aspects, having sufficient funds to buy the property is vital for a smooth purchase. But if you don’t have enough funds, you can apply for home loans from a bank or any financial institution. And here comes the need to get pre-approved for a mortgage.
A mortgage lender provides Pre-approval after conducting a home appraisal and verifying your credit scores. A pre-qualified letter or an estimate of closing costs for the loan helps you negotiate with the sellers. And if you are also looking for information about how much house can, I afford? Then this article will help you out. There are some other things that you need to know, which are listed below:
To get pre-approved for a mortgage, you need the following things:
- Proof of assets and Income
- Good Credit
- Employment Verification
- List of Other Documents
Proof of Assets and Income
The lender needs to know your financial position to get pre-approved for a mortgage. It’s not rocket science to find this information. It’s all in your bank account statements and tax returns that you filed before. Jot down all your savings and investments, whether in the form of money or assets such as cars and houses.
You also need to show your employment history, paycheck stubs, and federal income tax returns for the past two years before getting pre-approved for a mortgage. Your lender will put all this information in a financial statement to determine how much you can pay monthly towards your home loan repayments.
Another important thing that you need to have before getting pre-approved for a mortgage is good credit. Most lenders will run a credit check and refuse to give you a loan if your score is below 700. It’s because the lower the number, the more complicated it will be for you to secure any financing deal. If your score is below the average, then it’s wise to visit an expert and get your credit report reviewed.
The next thing you need to show when applying for pre-approval of your mortgage loan is your employment history. Your lender wants to know that the Income on your job application is accurate and you will pay the loan back on time. Lenders also want to make sure that you have been in your job long enough to prove that it’s a stable position.
List of Other Documents
There are several other documents that your lender might ask from you before getting pre-approved for a mortgage. These might include a list of properties you own and the Social Security number. The lender will ask you to fill out an application form and sign a loan agreement.
The first step towards getting pre-approved for a mortgage is filling out your application form and submitting it to your lender of choice. The next thing that will happen is the lender will run a background check and verify your employment and other information provided by you. Your credit score is also checked to ensure that it’s not below 700.
After this, the loan officer evaluates your financial situation and decides how much money they can lend you without putting too much stress on your budget. Let’s dig a little deeper into it.
Personal details and ID proof
Personal details such as your name, date of birth, and social security number are crucial before you get pre-approved for a mortgage. These details help the lender know that you exist and have a job to lend you money. Lenders also ask for the full names of your parents or spouse, as some banks lower your credit score if your family doesn’t have a good credit score.
In addition, the identification proof that contains a photograph of you is necessary when applying for pre-approval for a mortgage. A driver’s license or passport will suffice as ID proof in most cases.
Proof of Residence
You may also need to provide proof of residence when applying for pre-approval for a mortgage. This proof can be a utility bill or a pay stub, so the lender knows that you live in the place and will not leave it vacant when they lend you money to buy a house.
Social Security Number
The lender may also ask for your social security number. Your social security number is crucial because most lenders use this number to check your credit score. In most cases, a lender will not give you a loan if your score is below 700. If this is the case with you, it’s best to contact an expert and see how they can help you improve your score to get approved for a home loan when the day comes. The expert can also help you lower your monthly payments and interest rates so that you can afford to pay back the home loan in full.
If you have a salaried job, the lender may ask for your last two months’ pay stubs or bank statements. This determines how much you can repay in monthly installments towards the home loan.
In most cases, a lender will not give you a home loan if your monthly Income is less than the monthly repayment amount. A lender needs to be sure that you can pay back the money they lend to you without any hassle.
Income from multiple sources
If you have Income from more than one source, then make sure to inform your lender as some lenders might want you to have a higher income from a single source. It’s best to speak with an expert about the lenders who would consider giving you a home loan if you have Income from multiple sources.
Documents for your income tax returns
Sometimes lenders also require proof that you own your property, such as tax returns, bank statements, and receipts. This requirement helps them when you need to borrow against your property.
Sometimes it’s possible to be pre-approved for a mortgage without owning the property you want to buy, but most lenders will ask for your tax returns if this isn’t the case with you. This is because lenders need to know that your property belongs to you or someone who has given it on lease or rent.
A detailed statement of the Investment amount
A detailed statement of the investment amount must be sent along with the application form. This statement outlines the amount you are looking to borrow, the interest rate that would apply on your loan, the loan term, and all repayment installments.
Details of Monthly Obligations towards Debt
Your monthly Debt details will provide a brief idea to the lender about your monthly expenses. This includes your credit card dues, utility bills, phone bills, groceries, medical expenditure, and other expenses.
Rental Information and Landlord References
Sometimes you might need to provide proof of your rental property’s Income. This can be in the form of rental contracts, receipts, and bank statements. Lenders also ask for the names of people who rent your property so they can check your credit score.
Property Details to get Pre-approved for a Mortgage
Lenders will ask you for detailed information about your desired home when applying for pre-approval for a mortgage. The questions are related to the property type, its location, size, age of the property if it requires any repairs or renovations, appliances available with it, and so forth.
Also Read: Importance of Location in Real Estate
Signed Loan Agreement
If you do not have a loan agreement, then you can sign one with the lender before submitting it for pre-approval for a mortgage. A signed loan agreement helps both you and the lender ensure no misunderstandings when it comes to the loan repayment.
A pre-approval is better than being pre-qualified for a home loan because it can be categorized as an official commitment from the lender to give you a home loan. While some lenders don’t do pre-approval, others will charge for it.
Getting pre-approved for a mortgage is a long and tedious process, but it’s all worth it in the end. It’s essential to provide all the necessary documents to the lender so that there are no misunderstandings regarding the loan repayment. Make sure to speak with an expert about the different lenders who would be willing to give you a home loan.
Why would a mortgage pre-approval be denied?
A change in your credit score indicates that you are in a higher-risk category. Your credit score can be harmed if your credit utilization is too high, which suggests you are carrying far more debt than necessary. This could be the important reason for the rejection of your loan application.
What factors are considered during the pre-approval process of a mortgage?
Several factors need to be considered during the pre-approval process, such as your credit history, Debt-to-income (DTI) ratio, Employment history, and Income along with Assets and liabilities.
How can I improve my mortgage pre-approved?
Raising your credit score, comparing different loan offers from various lenders, considering a longer mortgage term, and adding other sources of Income will help in getting pre-approved for a mortgage
How early should You get pre-approval for a mortgage?
It might take anywhere from a week to two weeks for you to get your mortgage pre-approval after applying, and you’ll spend around three months looking at houses. Depending on the state of the real estate market in your area, it may take between one and two months to negotiate an offer with the seller.
Also Read: How to pay-off Mortgage Faster