How to Get a Mortgage Pre-Approval
There’s
nothing more frustrating than falling in love with a home and then
discovering you can’t afford to buy it.
Consulting with a
mortgage lender is the first step you
should undertake in the home buying process. Almost all first-time
buyers need a mortgage to
finance their home purchase, so get prepared before you look.
When
you’re armed with the knowledge of what you can afford, it focuses your search
and allows you to make a move when you find a home you love.
What Is a Mortgage Pre-Approval?
Lenders offer
borrowers either a pre-qualification letter or a pre-approval letter, but most
REALTORS® recommend you get a pre-approval letter before you start home
shopping.
A pre-qualification
letter states the amount a lender thinks you’ll be able to borrow based on
your income and credit profile without any actual documentation.
However, mortgage
lending standards have tightened since the housing crisis, and all mortgage
loans now require full documentation and verification of income and assets—so
most sellers will only accept an offer from a buyer with a full pre-approval
letter based on verified information.
Your home hunt will
benefit with a pre-approval for two main reasons:
§ First, you’ll have completed the
credit check and paperwork requirements for a mortgage, so you’ll
know your ability to finalize a home purchase. If the lender finds a problem with your credit or
an error on your credit report, you’ll have time to fix it before making an
offer.
§ Second, since your documentation will already
be in place, a mortgage pre-approval will likely speed up the process
once you make an offer.
How to Find a Mortgage Lender
A REALTOR®
should also be able to recommend a lender or two for you to interview. You can
check for a loan officer’s license and read reviews online to be sure you’re
working with someone reliable.
As
a first-time buyer, you should call a few lenders to find someone experienced
with first-time buyer needs who can possibly help you identify special loan
programs in your area.
What to Expect From Your Mortgage Lender
The
best lenders take a collaborative approach with borrowers and explain all your
loan options. When your lender checks your credit report,
they should give you feedback on how to improve your credit profile.
Your
mortgage lender should provide advice about when to lock in your loan rate and
discuss the pros and cons of various loan programs.
What Your Mortgage Lender Expects From You
Your
lender needs you to be honest about your finances and responsive to all
requests for additional information, no matter how unimportant it may seem to
you. The more cooperative you are with a lender, the easier the loan
process will be.
You
should be prepared with
tax returns, W2s, bank statements, employer names and addresses, and your
current landlord’s information.
Your
lender will generate a mortgage approval based on your debt-to-income
ratio and credit score, but you should also consider your budget and your own
comfort level with the payment amount.
There’s
no need to borrow the maximum amount you qualify for, particularly if you know
you plan to spend money on items that don’t show up on your credit report. Your
careful planning and preservation of your emergency fund are important for
responsible, long-term homeownership.
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