How To Get Pre-Approved For A Mortgage
An important first step to shopping around for a new home is to learn how to get pre-approved for a mortgage. It takes a lot of the stress out of the closing process when you find the perfect house. Having a pre-approval letter when you make an offer gives you negotiating leverage. The seller will know you are a serious buyer and that there is less chance that your final approval will be denied. It also helps you to know how much you can afford and what price range you should be looking in. While it is not a guarantee that the loan will be finalized, it will relieve a lot of the pressure. No one wants the embarrassment of being unable to get financed after making an offer on a home. To get pre-approved for a mortgage requires you to go through some of the mortgage process before you even start looking for the home. Pre-approvals are becoming more common and many sellers are requesting them before they will even look at an offer.
- Find out your credit score. You are allowed to get a free credit score once a year from each of the three credit agencies. If your credit score is low, you will need to repair it before going any further. Knowing your credit score number will help lenders give you a more accurate quote and recommendations for the best mortgage for you. You will need at least a 650 credit score to get a mortgage and 760 or above for the best rate. Different lenders and packages will have different credit score requirements.
- Shop around for a lender. Talk to different mortgage lenders to find out about the mortgage packages they have and the criteria to get their loans. There are many different mortgages available and you want to find the best one to fit your needs with the cheapest interest rates. Pre-approval for a mortgage does not guarantee you the final loan will be approved nor does it bind you to the lender who gave you the pre-approval. You can always choose another lender if you become dissatisfied.
- Gather the documentation you need to get pre-approved. A mortgage lender will review criteria such as credit score and your income versus debt to determine how much you can qualify for. The lender you chose will tell you what they require. However, these are the items that are always required: W2 statements or 1099 income statements for the last two years, federal tax returns for the last two years, bank statements for the last two months and recent pay stubs and proof of income.
- Find out how much down payment will be required. It is much harder to get 100% financing then in the past. Many mortgages will require a minimum of 5% down. You should also figure out how much closing cost will be involved. Most of the closing cost will come from the mortgage lender. However, you will also need money to pay for the closing attorney, assessments and title insurance. The average about 2% to 3% to cover closing costs. Having the amount of down payment is not necessary to get pre-qualified, but it will be necessary for final approval.
- Benefit from an easier home buying process. You will know how much you can afford and be more confident that the final loan will be approved with minimal delays. The loan approval process normally takes the longest of all the contingencies in a real estate transaction. Getting pre-qualified for a mortgage will speed up the process and get you to the closing table faster.
- Know your expiration date. Most pre-approvals will be valid for ninety days, but it will vary by lender. Ask the lender to revalidate the pre-approval letter if time starts to run out.
Be honest with the mortgage lender up front. You do not want something to happen before the final approval to cause a rejection.
This is not the time to buy a car or to do anything else that will affect your credit score after getting the pre-approval.