Getting pre-approval for a mortgage could make a huge difference between the seller accepting the offer and choosing to go with a different buyer. After you get pre-approval for a loan, the seller will understand that you are a strong prospect as compared to somebody who has not yet started negotiations with a lender.
That said, a pre-approval is useful while you are looking for a home. When you have a pre-approval amount, you do not spend your time looking for a home beyond this amount. Say, you have a pre-approval of $250,000, then you will not look for a $500,000 home. It is natural to have a few questions about how to get pre-approval for a mortgage. Here are a few tips to help you with the same and make the home-buying process easier.
Before starting the pre-approval process
You have to do some work before you start with the mortgage pre-approval process. If you fail to do that, your application might be rejected. Get your hands on your credit report and take a good look at the credit history. In case you see a mistake or see something that is not correct, you need to contact the bureau right away and get it immediately resolved. Now, gather the documents you will need for the mortgage pre-approval process. You’ll need:
- Tax returns for two years
- W-2 forms of two years
- Pay stubs to show your year-to-date income
- Details of any real estate in your name
- Residential details of the past two years
- Contact information of the landlord
- Statements that show the records of your assets.
You need to remember that a pre-approval will take work, and it will pay off while you are looking for the right home. That said, you need to keep in mind that a pre-approval will not guarantee that you will receive the exact mortgage mentioned in your estimate, but it could give you an idea of the amount you qualify for.
Tips to get a mortgage pre-approval
- Before submitting your application, try to increase your credit score. The better the credit score, the better deal you will get.
- Work on the debt-to-income ratio since lenders set their mortgage quotes based on the amount of money that goes into debt payments like student loans or credit card dues. So, if you spend a higher part of your income on debt, you will qualify for a small mortgage.
- If you need any advice or assistance, seek help. Speak to the lender and clear all your doubts so that you are on the right page. You must understand all the aspects of a mortgage including a reverse mortgage. If you intend to take advantage of it, use a reverse mortgage calculator to get a clear idea.
- See what a lender offers and ensure you understand every term of the mortgage. In case you do not understand something, ask the lender to explain further.
- Do not buy a house for the amount you are approved for. This is something you need to understand well. If you are approved for $250,000, do not take out a mortgage for the entire amount. Try to save money by looking for a slightly smaller house and use this money on taxes, mortgage payments, and utilities.
- Ask the lender to adjust your letter if you do not need the full amount. Say, you have been approved for $300,000 but you do not need the same amount because you find a house that costs only $180,000, then you need to ask for an adjusted letter which will guarantee only $180,000. Once you show this letter to the seller, he will not ask for more money, which he could try to do if he is aware that you are approved for a higher amount.
- Keep the timeline in mind. You must be aware that a pre-approval will be good for about 90 days. You need to wait until you are ready to begin looking for a home before you apply for pre-approval, otherwise, you will waste your time as well as the lenders’.
Look for a lender
A mortgage offer will vary from one lender to another, and you should always apply with multiple lenders. It will help narrow down the options by prequalifying you for the mortgage. This process of prequalification is much quicker than the pre-approval process. However, you shouldn’t rely on it since it doesn’t have an in-detail look at the finances. Make a list of all the lenders and provide your paperwork. A lender usually responds in a couple of days, and if you have qualified, you will receive a mortgage pre-approval letter carrying an estimate of the amount you are eligible to borrow.
Do not choose the first lender you come across. Do your research and take your time before you make the final decision. The right lender will make the home search and purchase process much easier than you can imagine.
