Are you thinking about getting a mortgage pre-approval? Searching for the best mortgage pre approval tips and tricks?
If you want to buy a home, it’s a good idea to get a mortgage pre-approval before you start shopping. Getting a mortgage pre-approval can give you a great idea of what you should be looking for and can be very helpful during your home search.
In this guide, we’ll tell you what you need to know about getting a mortgage pre-approval.
Table of Contents
What is a Mortgage Pre-Approval?
A mortgage preapproval is a letter from a lender which states that they’re potentially willing to lend you a certain amount of money to buy a home. When you get a pre-approval, a lender will evaluate your financial situation and determine your ability to borrow money to buy a home.
By getting a preapproval, you can verify that you’ll have a certain amount of money to spend when purchasing a home. You’ll know exactly what price range you should be considering and will also get an idea of what your interest rate would be on a mortgage. Taking the time to get a mortgage preapproval before purchasing a home will allow you to have a much easier time narrowing down your search.
By knowing how much money you’ll likely be able to borrow, you can then look for a home that fits your parameters. You can search for a home with confidence and will know whether you’ll be able to afford a specific property or not. You’ll have a good idea of what you need to look for when working with a realtor.
Pre-Qualification Vs. Pre-Approval
A common misconception that home buyers have is that pre-qualification and pre-approval are the same thing. However, they are a bit different. While both of these offers will help you better understand how much you can borrow and what mortgage terms you could get for a mortgage, a pre-approval is much more in-depth than a pre-qualification is.
A pre-qualification won’t be as accurate as a pre-approval since you won’t need to provide as much information to get one. Your credit and finances won’t be checked as extensively as with a pre-approval. A pre-qualification may give a lender a good initial look at your finances and potential for getting a mortgage, but it’s very limited overall.
A pre-approval, on the other hand, will be more in-depth and will require you to submit a significant amount of information. This may include bank statements, proof of income, personal information, and other important documents. It will also include a hard credit check as well.
Since it will be more in-depth, a preapproval will be much more accurate than a pre-qualification will. It can determine with better accuracy the amount of money you can borrow and what your terms may be when applying for a mortgage.
Pre-Approval Vs. Approval
It’s also important to realize that a mortgage pre-approval and a mortgage approval aren’t the same.
While a preapproval can help you determine your ability to get a mortgage and give you an idea of potential terms, it’s not a guarantee. You’ll still need to apply for full approval after you find a home that you want to buy. A pre-approval won’t be enough all on its own.
While you’ll be likely to get approved if you have a pre-approval letter, there are other factors that will come into play once you find a home that you would like to purchase. For example, your lender may need to check out some of the details of the property to ensure that everything is as it should be.
A lender may want to check the appraisal value of a home, confirm title ownership of the property, and check the condition of the home before approving you for a mortgage.
How to Get a Home Loan Pre-Approval
The process for getting a preapproval from a lender can vary, but there are a few steps that will be typical. Here’s what you need to know when applying for a mortgage preapproval.
Build Your Credit
Before applying for a mortgage pre-approval, it’s important to know what your credit score is. You’ll want to check your credit score to know where you stand and to determine if it’s a good time for you to apply for a pre-approval or not.
You’ll typically want to have a score of 620 or more if you want to get a mortgage preapproval, but the higher score you have, the better off you’ll be. A higher score will allow you to qualify for better rates and will make it more likely that you’ll get decent pre-approval terms. If your score is less than ideal, you may want to spend some time building it up before applying for a mortgage.
In addition to this, you’ll want to get copies of your credit reports and look over them closely. Be sure to dispute any errors that you see before you start applying for pre-approval letters. If there are any errors on your credit report, it could be affecting your credit score and making it lower than it should be.
Improve Your Debt-to-Income Ratio
Another thing that you’ll want to do when applying for a mortgage pre-approval is to calculate your debt-to-income (DTI) ratio.
Your DTI is the ratio of your gross monthly income to the debts you’re required to pay each month. This includes debt payments you’ll need to make on a monthly basis including credit card payments, car loan payments, and student loan payments.
Keep in mind that lenders will be checking to make sure that your DTI isn’t too high. You should expect that your DTI will need to be at least 36% or less if you want to get a mortgage, although there are some exceptions to this rule.
Get Your Documents Together
Before applying for a mortgage preapproval, you should make sure that you’ve gathered any necessary documents that you’ll need to show a lender. You’ll need to have financial and personal information ready when applying for mortgage pre-approvals, so make sure that you start gathering your documents as soon as you can.
Some of the personal information you’ll need to have when applying for pre-approvals include your social security number, your current address, proof of assets, credit history, and employment information.
You’ll also need to provide adequate financial information as well. You should have W-2 statements, bank statements, and pay stubs available for lenders when proving income. If you’re self-employed you’ll likely need to provide 2 years of tax returns as well.
Start Applying For Lenders
When getting ready to buy a house, you should make sure that you apply for a pre-approval letter with more than one lender at a time. Be sure to compare your rates with multiple lenders to ensure that you make the best choice that’s available to you based on your financial situation.
Keep in mind that you can safely apply for multiple lenders for pre-approvals without it affecting your credit score any more than if you were just applying for one.
However, you’ll want to be sure that you apply for the different pre-approvals at around the same time. Ideally, you should make all pre-approval applications within a 14-day range. This will help make it clear that you’re seeking pre-approval for a single mortgage.
Make Sure the Timing is Right
If you’re applying for mortgage pre-approvals then you should make sure that you do it at a reasonable time. You shouldn’t apply too far in advance.
A pre-approval letter will typically be valid for 30 to 90 days, so you’ll want to start applying for pre-approvals a short length of time before you start doing your most serious house shopping. This way, you’ll have the most accurate information on your potential mortgage terms available at the right time.
If you find a home to buy, you’ll have a clear idea of what you’re likely to get approved for once you decide to apply for a mortgage.
Using These Tips to Get a Mortgage Pre-Approval
If you want to have the easiest time shopping for a home, you should consider getting a mortgage pre-approval before you begin your search. A mortgage pre-approval can be very helpful when buying a home and can help you determine exactly what you should be looking for.
Need more helpful real estate tips and advice? Read through our blog now to find more tips for buying a house or property.