The first step to buying a home begins with figuring out how much house you can afford. To be pre-approved for mortgage financing, you must disclose information about your income, employment, and financial records.
In the world of home buying, a mortgage pre-approval is the lending institution saying that you can go out and buy a home, so long as it fits the parameters outlined in your pre-approval letter. A mortgage pre-qualification simply means that you may be able to buy a home but will still need approval after you find the property you wish to purchase.
Pre-qualification letters can help you get on the path to homeownership, but it doesn’t guarantee you will be able to get the job done. You can move quickly with pre-approval letters. This lets home sellers and real estate agents know you are serious about purchasing a home and can do so.
Is pre-qualified the same thing as pre-approved?
If you aren’t sure if your finances are ready to purchase a home, pre-qualification can be a significant first step. Pre-qualification for a mortgage is often based on an informal assessment of your financial situation.
The lender will ask you about your credit, debt, income, assets, and other financial information. This will allow them to estimate whether or not you are eligible for a mortgage. Because this will only be a “soft pull” on your credit, it should not impact your score.
If you get the pre-qualification, you will need to get pre-approved once you get under contract on the house you want to buy. A lender will pull your credit report and review documents to verify your income, assets, and debts during the mortgage pre-approval process. You can skip pre-qualification if you are confident in your credit and financial ability to purchase a home.
A mortgage pre-approval refers to an offer from a lender to lend you a specific amount at certain terms. After a certain period, such as 90 days, the request is void.
Getting pre-approved still doesn’t guarantee you will get a loan. The mortgage can still be denied. A home appraisal must ensure you don’t pay more for your home than ’ it is worth. If your financial situation changes between pre-approval and closing, the lender may withdraw its offer.
You should not apply for new credit or make large purchases after being pre-approved for a mortgage.
What is a pre-approval letter?
Your mortgage lender will issue a preapproval letter once you’ve been pre-approved. The letter will include information about the loan amount and type. Real estate agents and home sellers confirm you can afford a home. If you buy a condo, the building management can send the letter.
How to get pre-approved for a loan home
- Get your credit score now. Before reaching out to a lender, knowing where you stand concerning your credit score is essential. It is recommended that you have a credit score of at least 620. Higher credit scores will allow you to qualify for lower rates. A credit score of 740 and above is generally sufficient to permit the best mortgage rates.
- Examine your credit history. Get copies of your credit reports and make any corrections. Many credit reports contain errors that can stop you from being approved. Before applying, you should work with creditors to resolve any delinquent accounts.
- Calculate your debt-to-income ratio. Your debt-to-income ratio, or DTI, is the percentage of gross monthly income that goes toward debt payments. Lenders prefer borrowers with a DTI below 36%, including the mortgage.
- Collect income, financial account, and personal information. This includes Social Security numbers, current addresses, and employment details for you and your co-borrower (if you have one). Also, you will need information about your bank and investment accounts and proof of income. To get a mortgage pre-approval letter, you will need your W-2 tax form and 1099s for additional income sources. While two years of continuous employment is preferable, there are exceptions. For self-employed applicants, you must supply two years of income tax returns. You will need to provide a paper trail if your down payment comes from a gift or sale of an asset.
You should contact more than one lender when looking for a mortgage. Comparing rates and fees from different lenders can help you save thousands of dollars over a 30-year mortgage. Your credit score shouldn’t be affected by getting pre-approved for a mortgage. FICO, the U.S.’s largest credit scoring company, suggests limiting your mortgage pre-approval applications to 30 days.
This process is another reason to choose the right real estate agent when buying a home. Your realtor can help you through this process as they have done it hundreds of times. Don’t ignore one of your most valuable assets.
Rawlings recommends The Ford for families seeking the “less stressful, more relaxing pace of life offered by living in the [low]country.” She adds: “[The Ford] offer[s] both adventure and culture, giving homeowners the option of not having to choose so starkly between the excitement of the city and the restorative powers of nature.”
Speaking on the many amenities at The Ford, Rawlings mentions: “Of course, bring your horse. The Equestrian Center is a full-service boarding facility set across seven lush acres. Kids’ programs include day camp, trail rides, expert-led archery, shooting tutorials, supervised fishing excursions plus golf, tennis, and pickleball clinics.”