Whether you are a first-time house buyer or looking to purchase your next home, getting pre-approved for a mortgage can be extremely helpful during the house-hunting process. Let’s take a look at the difference between a mortgage pre-approval vs. a pre-qualification, the advantages of having a pre-approval, and how to obtain one.
- Mortgage Pre-qualification vs. Pre-approval
- The Advantages Of Having A Mortgage Pre-approval
- How To Get Pre-Approved For A Mortgage
- Verification Of Income
- Proof Of Assets
- Credit Score
- Debt To Income Ratio
- Employment History & Verification
- Mortgage Pre-approvals
Mortgage Pre-qualification vs. Pre-approval
A pre-qualification typically takes place very early in the home buying process. Simply put, a pre-qualification is an estimate of how much a lender might be willing to loan you. This is based on the financial information that the lender is provided and a check of your credit score. It is essential to understand that a pre-qualification is not a commitment on the part of a lender to loan you money for a home.
A pre-approval is an actual offer to lend you a specific amount of funds to purchase a house. While it is also not an official commitment, a pre-approval holds a lot more credibility in the marketplace with sellers and real estate professionals. Pre-approvals are generally valid for up to 90 days.
The Advantages Of Having A Mortgage Pre-approval
There are many benefits to obtaining a mortgage pre-approval when buying a home, including:
- Helps determine what price range of homes to consider, based upon mortgage amount.
- Gives sellers the confidence that you are a serious buyer.
- Price negotiations with sellers are more fruitful.
- Real estate agents are more likely to focus more on buyers with a pre-approval document.
- Once a home is selected, a pre-approval makes the purchase process go much faster.
How To Get Pre-Approved For A Mortgage
The process of getting a pre-approval for a mortgage is not complicated but does involve specific steps.
Verification Of Income
Lenders will need documentation of your income for at least the past two years. Most people can provide their W-2 statements, which will give the mortgage underwriters all of the information they need concerning your income.
If you are self-employed or a contractor, tax return documents will suffice as well. Some underwriters may ask for recent pay stubs, bank statements from bank accounts, or credit card documentation. Your lender wants to make sure that you have enough consistent income to pay your mortgage every month.
Proof Of Assets
In addition to income, lenders need to verify that you have the necessary assets to fund a down payment and take care of other mortgage-related expenses, such as closing costs. Being able to show that you also possess a reasonable amount of cash reserves can be very helpful during the pre-approval process.
A person’s credit score is a numeric measurement of their history of debt repayment. A good credit score is a significant component of successfully obtaining a mortgage pre-approval. For a conventional loan, most lenders require applicants to have a credit score of 620-680 and above.
Debt To Income Ratio
During the pre-approval process, lending underwriters often evaluate an applicant’s debt to income ratio. Simply put, a homebuyer’s debt payments should not exceed 36% of their monthly gross income. For example, if your monthly pre-tax income is $5,000, your debt payments (including the mortgage) should not be more than $1,800.
Employment History & Verification
Getting pre-approved for a mortgage is all about demonstrating that you will be able to repay your loan each month. In addition to W-2 statements or other income documents, lenders will also verify that you are employed. Underwriters also look at your W-2 to check your employer’s information as well as your annual salary.
The dedicated team at Better Lending has helped thousands of our customers obtain a pre-approval mortgage document. A pre-approval is the best way to approach the house buying process, as it gives everyone involved the confidence to know that you are serious about purchasing a new residence. Contact us today to learn more about how we can provide you with the peace of mind that comes with having a mortgage pre-approval while searching for the perfect home.
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