If you’re like most homebuyers, taking out a loan is essential. But mortgages don’t just fall out of the sky. They’re an involved process and the better prepared you are from the start, the fewer issues you’ll face along the way to getting the keys to your new home. Here’s what to know about the mortgage loan preapproval process.
Preapproval is your first step in getting a home loan
There are three basic steps in getting a mortgage: the pre-qualification, the preapproval, and the mortgage commitment. Preapproval is an important step that will help give you the best shot at getting competitive mortgage rates.
What is preapproval for a home loan?
Preapprovals are given based on what a lender determines how much money you can qualify to borrow based on the personal and financial information and documentation you provide.
The better you prepare for your preapproval, the higher of a loan you’ll be promised with a better interest rate.
Why is preapproval important?
Most real estate agents and sellers won’t even take you seriously without a preapproval letter in your hand. Preapproval shows that a lender reviewed your finances and has determined that you will be able to get a loan for an amount suitable to the homes which you are shopping for.
Without a preapproval, not only do you come across as unprepared and inexperienced, but agents will often assume that your home dreams are bigger than your checkbook.
How do I get preapproved for a home loan?
The most important thing you’ll want to do before getting your preapproval is to check your credit reports and credit scores. The higher your credit score, the easier your loan process will be. Make sure to clear up and discrepancies, mistakes, or old accounts that may be weighing you down because they will come back to haunt you when you go through mortgage commitment.
You’ll also do well to pay down any debt on accounts so that your debt to income ratio is more balanced. This will help your credit score and make you a safer bet to lenders.
When should I get my preapproval?
According to the Home Mortgage Disclosure Act, less than 10 percent of buyers who were granted a mortgage in 2012 didn’t bother to get preapproved before house-hunting. Real estate agents will tell you that this is a big mistake. You should have your preapproval before you begin house hunting and definitely before you put a bid in on a property.
What do I need for my preapproval?
The good news is that the preapproval process is pretty painless. All you need to do is supply your lender with the documentation that they require. Be prepared to supply the following
- At least 2 months’ worth of pay stubs
- The past 2 years’ worth of W-2 forms
- The past 2 years’ worth of tax returns
- Documentation for other sources of income (i.e. social security or alimony)
- Two months’ worth of bank account statements
- Your credit report score
Your lender may ask for more but these are the basics that you should already have on hand when beginning the process of getting your preapproval. When the lender has these items, they will run your credit to provide you a preapproved loan amount, which is your preapproval letter.
How long is a preapproval good for?
Most preapproval letters are good for 60-90 days depending on your lender, giving you plenty of time to house hunt. If you don’t find anything or don’t have a bid accepted within that time, you’ll have to start the process over again so be sure to ask your lender what the exact timeframe is.
