If you’re thinking of buying a home, the first step is to get pre-approved for a mortgage. We’ll tell you everything you need to know about getting a mortgage pre-approval.
What is a mortgage preapproval?
A mortgage preapproval is a letter from a lender that indicates how much of a loan you can qualify for, based on an evaluation of your financial history. The letter is typically valid for 60 to 90 days and serves as proof that you’re eligible for a mortgage at a particular interest rate. A mortgage preapproval is different from a mortgage pre-qualification in that the preapproval entails a more thorough review of your finances.
Preapproval vs. prequalification
Preapproval and prequalification are two different things when it comes to getting a mortgage. Prequalification is when you give the lender some basic information about your finances, and based on that, they give you an estimate of how much you could borrow. Preapproval is more involved: the lender will do a more thorough review of your finances, and if they approve you, they’ll provide you with a letter that says how much you’re approved for.
How much can I afford?
A mortgage pre-approval is conditional approval from a lender that says you qualify for a loan up to a certain amount, based on the information in your application. It’s important to understand how much home you can afford before starting the house-hunting process. A mortgage calculator can help you estimate your monthly payments and get preapproved for a loan. Once you know how much you can borrow, you can start shopping for a new home within your price range. With a mortgage preapproval in hand, you’ll be in a stronger position to make an offer on the right home when you find it.
Collect your mortgage documentation
Now that you know how to get pre-approved for a mortgage, it’s time to start collecting your documentation. This includes things like your pay stubs, tax returns, asset statements, and credit history. Your lender will use this information to determine whether or not you’re a good candidate for a loan. The first thing you’ll need is your most recent pay stub. This will show the lender your current income and help them determine your ability to repay the loan. You’ll also need to provide tax returns for the past two years. This will give the lender an idea of your financial history and help them assess your risk as a borrower. Asset statements are also important documentation for a mortgage pre-approval. These statements will show the lender what kind of savings or other assets you have that can be used to repay the loan. Finally, you’ll need to provide credit history. This will give the lender an idea of your borrowing history and help them assess your creditworthiness. If you have all of this documentation ready, you’re well on your way to getting pre-approved for a mortgage. The next step is to find a lender and begin the application process.
Choose a lender
When you’re ready to start the mortgage preapproval process, you’ll need to choose a lender. You can work with your bank or credit union, or you can shop around for a mortgage broker. Once you’ve chosen a lender, you’ll need to complete a mortgage application and provide the required documentation. The lender will then pull your credit report and evaluate your financial history. They’ll use this information to determine whether or not you’re qualified for a mortgage preapproval. If you are, they’ll provide you with a pre-approval letter that indicates how much money you’re approved to borrow. Now that you know how to get a mortgage preapproval, it’s time to start shopping for your dream home!
Check your credit score
Before starting the preapproval process, is necessary to check your credit score. If you’re not sure what your credit score is, you can get it for free from a number of websites.
Receive your mortgage preapproval letter
With a mortgage preapproval letter in hand, you’ll be able to shop for homes with confidence knowing that you have been approved for financing. Once everything checks out, you’ll receive your preapproval letter outlining the terms of your loan.
Takeaway
If you’re planning on buying a home, a mortgage preapproval is a great first step. Getting preapproved gives you an idea of how much you can expect to borrow and what your monthly payments might be. It also shows sellers that you’re serious about buying a home and that you’re financially qualified to do so. If you’re not sure where to start, talk to your local bank or credit union about getting preapproved for a mortgage.
Sylvie Ragsdill is a freelance writer, copy editor, and personal finance writer. She has over 10 years of journalism experience, writing for both local and national publications. Sylvie has a passion for helping others manage their finances and make smart money decisions. She enjoys sharing her knowledge and experiences with her readers in order to help them make the most of their money.
