Getting Approved For Home Loan – When looking for a home, getting pre-approved for a mortgage can be an important step. Consulting with a lender and obtaining a pre-approval letter gives you the opportunity to discuss loan options and budget with the lender; This step can serve to clarify your overall home search budget and the monthly mortgage payment you can afford.
As a borrower, it’s important to know what a mortgage pre-approval does (and doesn’t) do and how to increase your chances of getting one.
Getting Approved For Home Loan
Think of a mortgage pre-approval as a physical exam of your finances. Lenders are likely to intrude into all areas of your financial life as a way to make sure that you are paying your mortgage.
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You’ve probably heard the term “pre-qualification” used interchangeably with pre-approval, but they are not the same. With a pre-qualification, you provide an overview of your finances, income and loans to the mortgage lender. The mortgage lender then gives you an estimated loan amount.
In this way, a mortgage prequalification can be useful as an estimate of how much you can afford on a home. However, the lender doesn’t pull your credit report or verify your financial information. Therefore, pre-qualification is a useful starting point for determining what you can afford, but it has no significance when bidding.
Pre-approval, on the other hand, involves filling out a mortgage application and providing your Social Security number so that a lender can conduct a stronger credit check. A strong credit check starts when you apply for a mortgage. For this process, a lender pulls your credit report and credit score to assess your creditworthiness before deciding to lend you money. These checks are recorded on your credit report and can affect your credit score.
In contrast, a soft credit check is when you take out your credit, or when a credit card company or lender pre-approves you for an offer without you asking. Soft credit checks do not affect your credit score.
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You will also list all your bank account information, assets, debts, income, employment history, previous addresses and other important details for a lender to verify. This is because, above all else, the lender wants to make sure that you can repay your loan. Lenders also use the information provided to calculate your DTI ratio and LTV ratio, which are important factors in determining the ideal interest rate and loan type.
All this makes pre-approval much more valuable than pre-qualification. This means that the lender has checked your credit and verified the documentation to approve a certain loan amount. Final loan approval is when you have done an appraisal and a loan is applied to a property.
Mortgage pre-approval letters are usually valid for 60 to 90 days. Lenders put an expiration date on these letters because your finances and credit profile may change. When the pre-approval expires, you’ll need to fill out a new mortgage application and submit updated documents to get another one.
If you’re just starting to think about buying a home and suspect you might have some trouble with a mortgage, going through the pre-approval process can help you identify credit issues — and potentially lower your risk. This may give you time to treat them.
The Pre Qualification Process For A Home Loan
Seeking pre-approval six months to a year before a serious home search puts you in a strong position to improve your overall credit profile. You’ll have more time to save money for a down payment and closing costs.
When you’re ready to make an offer, a seller will often want to see a mortgage pre-approval and, in some cases, proof of funds to show that you’re a serious buyer. In many hot housing markets, sellers benefit from intense demand from buyers and a limited number of homes for sale; They may be less likely to consider proposals without pre-approval letters.
Applying for a mortgage can be exciting, overwhelming and confusing. Some online lenders can get you pre-approved within hours, while other lenders can take days. The time frame depends on the lender and the complexity of your finances.
For starters, you’ll fill out a mortgage application. You will include your identification information as well as your Social Security number so the lender can pull your loan. Although a mortgage credit check counts as a hard inquiry on your credit report—and can affect your credit score—if you’ve been shopping from multiple lenders in a short period of time (typically for the new model of FICO scores), 45 days), the combined credit check count as one inquiry.
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Here is an example of a similar mortgage application. If you are applying with your spouse or other co-borrower whose income you need to qualify for the mortgage, both applicants will need to list financial and employment information. There are eight main sections of a mortgage application.
The specific loan product you are applying for; loan amount; terms, such as the loan repayment period (amortization); and interest rate.
Know; legal description of the property; year of construction; If the loan is for purchase, refinance or new construction; and the type of residence desired: primary, secondary or investment.
Your identifying information, including your full name, date of birth, social security number, years of school attended, marital status, number of dependents, and address history.
How To Get Pre Approved For A Mortgage
Name and contact information of current and previous employers (if you have been in your current position for less than two years), dates of employment, job title and monthly income.
A list of your basic monthly income, as well as overtime, bonuses, commissions, net rental income (if applicable), dividends or interest, and other types of monthly income, such as child support or alimony.
You’ll also need an accounting of your combined monthly housing expenses, including rent or mortgage payments, homeowner’s and mortgage insurance, property taxes, and homeowner’s association dues.
A list of all bank and credit union checking and savings accounts with current balances, as well as life insurance, stock, bond, retirement savings, and mutual fund accounts and associated values. You need bank statements and investment account statements to prove that you have the funds for the down payment and closing costs in addition to cash reserves.
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You must also list all liabilities, including revolving fee accounts, alimony, child support, car loans, student loans and any other outstanding debt.
Summary of key details of the transaction including purchase price, loan amount, value of improvements/repairs, estimated closing costs, buyer’s down payment and mortgage insurance (if applicable). (The lender will fill in most of this information.)
A list of any past judgments, liens, bankruptcies or foreclosures, pending lawsuits, or outstanding debts. You will also be asked to state whether you are a US citizen or permanent resident and whether you intend to use the home as your primary residence.
Most home sellers will be more willing to negotiate with someone who has proof that they can obtain financing.
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A lender is required to provide you with a three-page document, called a credit report, within three business days of receiving your completed mortgage application. This document notes that the mortgage has been pre-approved and details the loan amount, terms and type of mortgage, interest rate, estimated interest and payments, estimated closing costs (including any lender fees), estimated property taxes, and the homeowner. Describes insurance. , and any special features of the loan (such as balloon payments or prepayment penalties). It also specifies the maximum loan amount – based on your financial picture – to help you narrow down your home buying budget.
If you are pre-approved for a mortgage, your credit file will eventually be transferred to a loan underwriter, who will verify your documents against your mortgage application. The underwriter will also ensure that you meet the borrower guidelines for the specific loan program you are applying for.
After submitting your mortgage application, you will need to collect a number of documents to verify your information. Preparation and organization will ultimately help the process go more smoothly. Here is the list of documents that you need to submit to get pre-approved or get final loan approval before closing:
Many loan products allow the borrower to use a financial gift from a relative for the down payment. If you go this route, a lender will require you to complete a standard gift deed in which you and the giver of the gift state that the gift is not a third-party loan with no expectation of repayment.
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Otherwise, such an arrangement may increase your DTI ratio and affect your final loan approval. Additionally, you and the donor will need to provide bank details to obtain the source of the funds transfer from one account to the other.
If you want to maximize your chances of getting a mortgage pre-approval, you need to know what factors lenders value in your financial profile. they include:
Your DTI report measures all of your monthly debts in relation to your monthly income. Lenders add up debt such as auto loans, student loans, revolving fee accounts, and other lines of credit — plus the new mortgage payment — and then divide the amount by your gross monthly income to get the percentage.
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Depending on the loan type, borrowers must maintain a DTI ratio at (or below) 43% of their gross monthly income to qualify for the mortgage. The higher your DTI ratio, the more at risk you are
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