Seeking Pre approval
What Is A Mortgage Pre Approval?
Mortgage pre-approval is the process of determining how much money you can borrow to buy a home. During the mortgage pre approval process, lenders like The Lending Mamba look at your income, assets and credit score. This information determines what loans you could be approved for, how much you can borrow and what your interest rate might be.
Home Loan Pre Approval Vs. Prequalification
Preapproval and Prequalification are both ways of understanding the loan amount you’ll be able to get approved for. There are some slight differences between these two processes, though some lenders use these terms interchangeably.
A mortgage prequalification is like a preapproval, but it may not be as accurate. With a prequalification, you won’t have to provide as much financial information, and your lender won’t pull your credit.
Without your credit report, your lender can only give you rough estimates. This means the approval amount, loan program and interest rate might change as the lender gets more information. Because a prequalification is an initial review of your finances, you usually don’t need to supply documentation (like bank statements and pay stubs) during this stage.
Preapprovals are more in-depth than pre qualifications. When you get pre approved, you may be required to provide information or documents. These might include bank statements and pay stubs. A preapproval will also require a hard credit check so your lender can see your credit score and other debt.
Home Loan Pre Approval Vs. Approval
A preapproval is helpful when you’re shopping for a home. But you’ll need to get a full approval once you find your home. Simply getting a preapproval before you start looking at properties doesn’t guarantee you’ll get approved. Your lender will need to review property details for a home loan approval.
Here are a few property details your lender will need to approve:
The appraisal value: Your lender will order a home appraisal to make sure you’re not paying more for the home than it’s actually worth. An appraisal that comes back lower than the purchase price could pose problems for your loan.
The title: Your lender will work with a title company to confirm who owns the property and make sure there are no claims or liens against it.
The home’s condition: Some loans like Federal Housing Administration (FHA) loans require that the property meets certain standards before the loan can close. Issues like cracked windows, missing handrails or a roof in poor condition could keep an FHA loan from closing.
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How To Get Preapproved For A Mortgage
Before you can get a home loan pre approval, you need to verify your financial information and obtain a loan estimate. Let’s walk through each step and review the parts of the mortgage pre approval process you’ll be responsible for.
- Collect Your Documentation
The mortgage pre approval process is essentially a mortgage application. This means your lender or loan officer will want to take a comprehensive look at your finances and debt-to-income ratio (DTI). You should be prepared to provide information on the following:
Proof of income
Employment history and possible verification
Proof of assets
Credit history
Identification
Before starting the preapproval process, you’ll want the necessary documentation to ensure the process goes smoothly. Here are a few items you should have on your mortgage preapproval checklist:
Tax returns
W-2 statements`
Pay stubs
Bank statements
Driver’s license
Social Security number
Once you’ve submitted all your information to the lender, expect to receive your loan estimate within 3 business days. Although this may be much shorter if you use an online mortgage lender. The Loan Estimate gives details on the potential cost of the loan and is necessary for pre approval.
- Know When To Get Preapproved For A Mortgage
Pre Approval isn’t just for your lender. Knowing how much mortgage you can expect to take out is also highly beneficial to you as a home buyer. It can also help you narrow down and focus on your best options.
That means the best time to get preapproved is at the start of your home buying journey. If you’re ready, apply early to see your mortgage loan options and show agents that you’re a serious buyer.
- Get Your Credit Score Checked
Pre Approval usually requires a hard inquiry into your credit. While this may cause your credit score to drop slightly, getting preapproved for a mortgage won’t hurt your credit significantly. Subsequent inquiries from other mortgage lenders typically within 30 days won’t affect your score at all.
- Receive Your Mortgage Pre Approval Letter
When you get pre approved, you usually get a preapproval letter. There are a few reasons the preapproval letter is important. First, real estate agents typically want to see your pre approval letter before they show you houses. This ensures they don’t waste time showing you homes outside your budget.
Second, the preapproval letter is something you can share with the home’s seller when you make an offer. It shows you won’t have problems getting financed for the amount you’re offering.
- Understand How Long Pre Approval Lasts
Pre Approval doesn’t last forever. Check your expiration date and keep it in mind as you look at homes. Though it varies from lender to lender, pre approval is typically valid for 60 – 90 days. If you haven’t settled on a house, you can request a renewal. This is done by giving your lender your most up-to-date financial and credit information.
Benefits Of A Mortgage Pre Approval
If a preapproval doesn’t get you a loan right away, why get one? Preapprovals have several benefits.
It’s Easier To Shop
Preapprovals make the house hunting process easier for you and your real estate agent. In fact, many real estate agents require you to get pre approved before you shop for a home. A preapproval can give you a much better idea of how much house you can truly afford, so even if your agent doesn’t require you to get one, it’s still generally a good idea.
It Makes Your Offer Stronger
If you’re shopping in a competitive housing market or are a first-time home buyer, a preapproval can be crucial to getting your offer accepted. Sellers aren’t just looking for the highest offer. They’re also looking for offers that aren’t likely to fall through. A preapproval tells buyers you can get financed for the amount you’ve offered.
It Gives You Time To Sort Out Issues
There are reasons both home buyers and sellers may need to get to closing fast. Getting pre approved means you’re getting the bulk of the mortgage process done upfront. That way, once you’ve had an offer accepted, you can just focus on getting ready for your move.
Here’s how it works.
- Apply And Check Your Credit
Our online application asks you a series of questions to evaluate your eligibility for a home loan. You’ll give us information about yourself, the home you want to buy, your income and your assets. From there, we’ll check your credit so we can offer you accurate mortgage solutions.
- See And Customize Your Mortgage Solutions
At this point, you’ll see your recommended mortgage solutions and adjust your numbers to fit your budget. This is where you’ll see how much we can approve you for. We’ll also recommend types of home loans, down payments, monthly payments and mortgage rates.
- Get Your Approval Letter
Once you’ve chosen your mortgage option, you can see if you’re approved for it. From there, we’ll give you a Prequalified Approval Letter that you can use to shop for homes. For an even stronger approval, you can contact a Home Loan Expert to get a Verified Approval.
Mortgage Pre Approval FAQs
Continue reading these frequently asked questions if you’re still curious about home loan pre approval.
Why should I get a mortgage pre-approval?
Mortgage pre-approval is beneficial for home buyers for a number of reasons. It helps buyers search for homes within their budget, making for a smoother and more efficient house hunt. It also makes an offer more enticing to a seller, and gets a bulk of the mortgage process done early on.
How long does pre approval last?
If you’re pre approved, you’ll receive an approval letter offer that lasts for 60 – 90 days, depending on the lender. After that, you’ll need to apply again with another credit pull and updated paperwork. If there are any major changes to your financial situation, your pre approval limit might also change.
You can look at a house without preapproval. But getting preapproved for a mortgage early in the home buying process is beneficial. This way, you can find out if there are any issues that could prevent you from getting financing.
What factors are considered for pre approval?
In addition to considering your credit score, lenders will want to verify your employment and income. They’ll also consider your debt-to-income ratio (DTI). This is a calculation of your total monthly debts divided by your monthly income. This ratio, expressed as a percentage, helps lenders make sure you have enough income to reasonably cover your debts.
The exact DTI needed for mortgage approval varies by loan type. But generally speaking, you’ll want your debt-to-income ratio to be 50% or lower.
Why should I get pre approved by more than one lender?
Applying to multiple lenders helps home buyers compare interest rates and choose the deal with the most favourable terms. Shopping around for a mortgage that best fits your finances can save you a lot of money over the life of the loan.
Does getting multiple pre approvals hurt your credit score?
Each time you apply for a loan pre approval or approval, a lender checks your credit with a “hard pull.” This typically lowers your score by a few points. However, FICO® states your credit score generally won’t be negatively affected if you make all your inquiries on a home loan within 30 days.
Can you get denied a mortgage after being pre approved?
Yes, it is possible for a buyer’s mortgage to be denied after pre approval. This could happen because of an issue with the appraisal or guideline changes made by the lender.
But in most cases, getting denied is due to the buyer’s financial standing being negatively impacted. Examples include a change of employment, a decrease in credit score or accrued debt. It’s important to not make any mistakes or drastic changes until after closing on your home.
Will I get approved for a mortgage with bad credit?
The credit score needed to buy a house depends on the type of mortgage you’re looking to get. For example, conventional loans usually require a credit score of 620, while FHA loans only require a score of 580. If your score is below the minimum, you may not get approved.
However, you can still get approved with bad credit. Your chances of getting approved for a mortgage can increase with a bigger down payment or a low DTI. Switching to an FHA loan or taking time to repair your credit before applying can also make homeownership possible.
How far in advance should I get approved?
You should get approved for a mortgage as soon as you’re ready to start searching for homes. More importantly, you should get a mortgage approval as soon as you’re financially ready to buy a house. Keep in mind that the better your financial situation is, the more likely you are to get approved.
