What’s needed to get pre approved for a home loan? Getting Pre-approved for a home loan before the home shopping journey is not required, but it is a very good idea. Especially in a market where competition among borrowers is very intense. Unlike pre-qualification, getting preapproved for a home loan is a very important part of the home-buying process.
Preapproval will let you know if the lender is willing to provide a mortgage at a stated rate. It also gives you an idea of how much you can borrow and shows sellers that you are serious about buying. However, before going into the preapproval process, there are certain things needed. Follow this article to the end to know what’s needed to get preapproved for a home loan.
What is a Home Loan Pre-approval?
Home loan preapproval or Mortgage preapproval is the process of determining the amount you can borrow to buy a home. To preapprove you, lenders will take a look at your assets, income, and credit score and determine the loan you could be approved for. And how much you can borrow and most especially what your interest will be.
Preapproval vs. Prequalification
Although very similar, preapproval and prequalification are not the same things. A home loan prequalification is like preapproval, but might not be as accurate. With pre-qualification, you don’t have to provide much information about your income or finances. And the lender will not pull your credit. You will only say little about your debt, income, and assets, and the lender will give you an estimate on if you can qualify, how much can be able to borrow, and interest rates.
However, preapproval is the next process after you get a good estimate during prequalification. During the home loan preapproval process, lenders will pull your credit report. And review documents to verify your assets, income, and debts. If you are very confident about your financial and credit readiness to purchase a home. When you are ready to begin shopping; you can skip the pre-qualification process and move to preapproval.
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What’s Needed to get Pre Approved for Home Loan – Requirements for Mortgage Preapproval?
Mortgage preapproval requires applicants to complete an application and provide proof of income, assets, employment verification, and other important information. Check out the below for more explanation.
Proof of income
Homebuyers must provide tax returns and W-2 wage statements from the past 2 years. And also provide you with current pay stubs that show year-to-date income and income and proof of additional income sources like bonuses or alimony.
A potential borrower’s investment and bank account statement show proof that they have funds for required cash reserves, down payment, and closing costs. The down payment shown as a percentage of the selling price varies by the type of loan. Many home loans require buyers to buy private mortgage insurance. If he or she is not putting down up to 20% of the purchase price.
Good credit score
Most lenders require a score of 620 or higher to approve the loan. They usually reserve the lowest rates for borrowers with a credit score of 760 or higher. Check out how to get pre approved for a home loan below for more explanation about the credit score.
Verification of Employment
Not only will lenders verify employment through buyer’s pay stubs, but will call the employer to confirm a borrower’s salary and employment. Self-employed borrowers provide more information such as the location and type of business, stability of income, and strength of the business. And the ability of the business to continue distributing and generating income to allow borrowers to make the mortgage payment.
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Identification and personal documents required for pre-approval include social security number, a record of divorce, rent payment, and authorization for a lender to pull a credit report.
How to Get Pre-Approved for a Home Loan
The process of getting a home loan preapproval is very straightforward. And the better prepared you are, the more the process will go more quickly and smoothly
Get a free credit score
it is very important to know where you stand before meeting a lender. At least a credit score of 620 is recommended to qualify for a mortgage. If you have a higher one like 740 or above you will be able to qualify for better rates. You need a high score before going on the home-buying journey and also focus on lenders that work with borrowers with low scores.
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Check your credit history
Ask for copies of your credit reports and check out for errors. If you find any delinquent accounts, make sure you resolve them with credits before applying.
Know and calculate your debt-to-income ratio
Your DTI or debt-to-income ratio is the percentage of gross monthly income that goes to payments of debt, including student loans, credit cards, and car loans. Make use of an online debt-to-ratio calculator to estimate your DTI based on prospective mortgage and current debts. Most lenders prefer borrowers with a DTI of 36 percent, though it can be higher sometimes. If your monthly debts are very high, you may have to address them by refinancing or paying down your debt before you take the loan.
Gather your financial account, income, and personal information
this includes your employment details, current addresses, and social security numbers. You will need investment and bank account information and your proof of income. What’s needed to get pre approved for a home loan includes your 1099s and W-2 tax form. Self-employed applicants will have to provide 2 years of income tax returns.
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Contact more than one mortgage lender
Comparing different offers from more than one lender can help you save more money over a 30-year mortgage. Note that your credit score may experience a slight hit temporarily because preapproval involves a hard inquiry.
What if I don’t get pre approved for a home loan?
After your mortgage application is reviewed by a lender, he or she will provide a decision to deny, or preapprove with certain conditions. These may require you to provide more documentation and also reduce your existing debt to meet the lending requirements. If denied, the lender will explain and offer more options to help improve your chances for pre approval
How long does it take to get Pre approved?
This depends on the mortgage lender and whether you qualify. However, you could get Pre approved in as little as one business day. But it usually takes up to 3 to 4 days or even a week to receive. And if you have to go through an income audit or other verifications, it may take longer. Generally, if you have your documents ready and your finances and credit look nice, it is very possible to get Pre approved for a home loan quickly.
Do home loan preapprovals affect credit scores?
Preapproval for a Mortgage can lead to a temporary dip in your credit score. Preapproval also counts as a hard inquiry. Grouping hard credit inquiries within thirty days period will help reduce the impact on your credit score.
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