Usda Loan Pre Approval Online – If you’re looking for a home, getting pre-approved for a mortgage can be an important step. Consulting with the lender and receiving a pre-confirmation letter provides an opportunity to discuss loan options and budgeting with the lender; this step can help you figure out your overall house hunting budget and the monthly mortgage you can afford.
As a borrower, it’s important to know what mortgage pre-approval does (and doesn’t do) and how to increase your chances of getting one.
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Think of a mortgage pre-approval as a physical check on your finances. Lenders will likely dig into every corner of your financial life to make sure you pay off your mortgage.
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You’ve probably heard the term “pre-qualification” used interchangeably with pre-approval, but they’re not the same thing. With the pre-qualification, you provide an overview of your finances, income and debts to the mortgage lender. The mortgage lender will then give you an estimate of the loan amount.
Thus, a mortgage pre-qualification can be useful as an estimate of how much you can afford to spend on a home purchase. However, the lender does not take your credit reports or verify your financial information. Pre-qualification is therefore a useful starting point for determining what you can afford, but is not relevant to bidding.
On the other hand, getting pre-approved involves filling out a mortgage application and providing your social security number so the lender can do a hard credit check. When applying for a mortgage loan, a serious credit check is triggered. For this process, the lender takes 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.
A soft credit check, on the other hand, happens when you take out your own credit or when a credit card company or lender pre-approves you for an offer without asking. A soft credit check does not affect your credit score.
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You also list all the information about your bank account, assets, debts, income, work history, previous addresses and other important details that the lender can verify. The reason is that the lender first wants to make sure that you can repay your loan. Lenders also use the information provided to calculate the DTI to LTV ratio, which is an important factor in determining the interest rate and ideal loan type.
All of this makes pre-approval much more valuable than pre-qualification. This means that the lender has checked your credit and checked your documents to confirm the specific loan amount. Final loan approval occurs when you have an appraisal done and the loan is applied to the property.
Mortgage pre-approval letters are generally valid for 60-90 days. Lenders put an expiration date on these letters because your finances and credit profile can change. If your pre-approval expires, you’ll need to fill out a new mortgage application and submit updated documents to get a new mortgage.
If you’re just starting to think about buying a home and suspect you might have trouble getting a mortgage, going through the pre-approval process can help you identify credit problems and give you time to fix them.
The Loan Process
Seeking pre-approval six months to a year before seriously looking for a home puts you in a better position to improve your overall credit profile. Plus, you’ll have more time to save money for a down payment and closing costs.
When you’re ready to make an offer, the seller will often want to see a mortgage pre-approval and in some cases proof of money to show you’re a serious buyer. In many hot housing markets, sellers have an advantage due to intense buyer demand and a limited number of homes for sale; they may be less likely to consider offers without a prior confirmation letter.
Applying for a mortgage can be exciting, nerve-wracking and confusing. Some online lenders can pre-approve you within hours, while other lenders can take days. The period depends on the lender and the complexity of your finances.
To get started, fill out a mortgage application. You include your personal information and social security number so the lender can pull your loan. While mortgage checks are considered a heavy inquiry on your credit reports—and can affect your credit score—when you shop around multiple lenders within a short period of time (typically 45 days for newer FICO scoring models), the combined credit checks count as one inquiry.
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Here is a sample application for a single mortgage. If you’re applying with a spouse or other co-borrower whose income you need to qualify for a mortgage, both applicants must provide financial and employment information. There are eight main parts of a mortgage application.
The specific credit product you are applying for; amount borrowed; terms, such as loan repayment term (amortization); and interest rate.
Address; legal description of the property; year of construction; whether the loan is intended for purchase, refinancing or new construction; and intended type of home: primary, secondary or investment.
Your personal information, including your full name, date of birth, social security number, years of education, marital status, number of dependents, and address history.
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Name and contact information for 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, 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 association fees.
A list of all bank and credit union checking and savings accounts with current balance amounts, as well as life insurance, stocks, bonds, retirement savings and mutual fund accounts and their respective values. You’ll need bank and investment account statements to prove you have the funds for the down payment and closing costs in addition to cash reserves.
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You should also list all debts, which include VAT bills, maintenance, child support, car loans, student loans and other outstanding debts.
Review key transaction details, 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 much of this information.)
List of judgments, liens, previous bankruptcies or foreclosures, pending cases or debts. You will also be asked to indicate whether you are a US citizen or permanent resident and whether you intend to use the home as your primary residence.
Most home sellers are willing to negotiate with those who have proof of obtaining financing.
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The lender is required by law to provide you with a three-page document called a loan estimate within three business days of receiving your completed mortgage application. This documentation indicates whether the mortgage has been pre-approved and describes the loan amount, terms and types of mortgage, interest rate, estimated interest and payments, estimated closing costs (including lender fees), property tax and home insurance estimates, as well as and any special features of the loan (such as balloon payments or a prepayment penalty). It also determines 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 forwarded to the lender, who will review your documents against your mortgage application. The underwriter will also ensure that you follow the borrower’s instructions for the particular loan program you are applying for.
Once you’ve submitted your mortgage application, you’ll need to collect a number of documents to verify your information. Preparation and organization will help the process go more smoothly. Here is a list of the documents you must submit before closing for pre-approval or final loan approval.
Many loan products allow borrowers to use a financial gift from a relative to make a down payment. If you choose this route, the lender will ask you to complete a standard gift deed in which you and the gift giver confirm that the gift is not a third-party loan that is expected to be repaid.
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Otherwise, such an arrangement could increase your DTI ratio and affect your final loan approval. In addition, both you and the donor must provide bank statements for the transfer of funds from one account to another.
If you want to maximize your chances of getting pre-approved for a mortgage, you need to know what factors lenders value in your financial profile. They include:
Your DTI ratio measures all of your monthly debts against your monthly income. Lenders add up debts such as car loans, student loans, VAT accounts and other lines of credit, plus the new mortgage payment, and then divide the amount by your gross monthly income to get a percentage.
Depending on the type of loan, borrowers must maintain a DTI ratio of 43% (or less) of their monthly income to qualify for a mortgage loan. The higher your DTI ratio, the higher your risk
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