How to get Pre-Approved in the Mortgage Loan Process
What is a Mortgage Pre-Approval?
Ready to start the homebuying process? You may have already heard that the first initiative to take is to get pre-approved. But, what exactly does that mean? A mortgage pre-approval is a documented evaluation letter from a lender that analyzes and is based on your financial history and situation in order to determine if you qualify for a loan. Think of it as a pre-screening of how much you can afford.
Why is it Important to get Pre-Approved?
The best way to begin your home search is by getting pre-approved. It shows that you are ready and serious about buying a home. Why is it important though? It helps your real estate agent find the best properties you can afford by narrowing the search. If you were to begin your home search without getting pre-approved, you might end up wasting time and disappointed by finding out the properties you found were above your price range. During the process, you may be made aware of financial issues that you weren’t aware of that could impede with your homebuying process.
What do I need to get Pre-Approved?
So you made the decision to take initiative and get pre-approved but what do you need to bring make it happen?
- Proof of Income – The mortgage lender will ask you to provide proof of income with W2 forms, recent pay-stubs, and any verification of additional income. This is self-explanatory but lenders need official confirmation of your financial income as per protocol in order to validate your for pre-approval.
- Credit – One of the most vital necessities to get approved for a loan is having a good credit score. Lenders will analyze your credit score and financial history to verify that you’ve been making monthly payments on time. This proof is used to confirm that you are reliable.
- Assets – Also known as proof of funds, it simply confirms with your lender that you have sufficient investment to deposit a down payment, closing costs, etc.
- Employment Verification – Even though this may seem redundant, Mortgage Lenders need to analyze that you have been employed at your current job for the last two years or within the same field of work. They want to verify that your employment is stable in order to qualify you for a loan. They are required to follow protocols as unstable employment can have a negative effect in your ability to make monthly payments. It’s wise to avoid changing jobs, becoming self-employed, purchasing a new vehicle, or obtaining a new credit card while applying for a mortgage.
How do I increase my chance of getting Pre-Approved?
- Improve your Credit Score
- Make Payments on Time
- Stay on Top of Your Budget
- Minimize your Debt
- Avoid Large Purchases
- Have a Decent Down Payment
- Prepare your Documents
What Happens after a Mortgage Pre-Approval?
Your main goal after getting pre-approved should be to stay financially stable. That means delaying large purchases such as a car, avoid incurring debt of any kind, pay your bills on time, and continue to save. Any changes in your financial history can have an affect on your loan approval.
What Happens If I can’t get Pre-Approved?
Sometimes homebuyers find out that they aren’t able to obtain pre-approval and that’s okay. Ask your prospect lender for an explanation on why you weren’t approved. Make a plan to fix anything that impedes you from continuing the homebuying process by increasing your chances in getting pre-approved. Have discipline in your financial decisions.