How to Get a Mortgage Pre-Approval

by allloans

Mortgage pre-approval is an essential step towards getting your dream house. Sellers are more likely to accept your offer if they know that you already have financing lined up. Getting pre-approved for a mortgage also ensures that you know how much you can afford to pay for a house, so you’ll know which properties you can make an offer for. Pre-approval means that a lender has made an assessment of your financial situation and conditionally promised to lend you a certain amount of money based on information such as your credit history, employment history and available assets. Note that pre-approval is not the same as pre-qualification since the latter only indicates that the borrower is eligible for a loan but the lender has not yet committed to give him one.

Before seeking a mortgage pre-approval you should first request for your free credit reports from the major credit reporting bureaus so that you can see what your credit score is and if there are erroneous items on your report that may be pulling it down. If you spot any errors, make sure to write to the credit bureau and dispute them at once. Make sure that your credit score is as high as possible before you approach mortgage lenders. An outstanding credit score is one that is above 700 since the average borrower typically has a credit score of 600 to 700.

Mortgage pre-approval process

Then start gathering the papers you’ll need to present to mortgage lenders. While every lender has their own particular requirements for a mortgage pre-approval in general you’ll need the following:

  • W-2 forms for at least the past two years, or 1099 forms if you are a freelancer.
  • Federal tax returns also for at least two years.
  • Bank statements for at least the past six months to indicate that you have an active account.
  • Proof of income such as pay stubs from your employer.
  • Proof of investment income.

You should approach two or three mortgage lenders so that you can find the best loan package for your needs. Note that you don’t have to submit a formal application for a loan before seeking a mortgage pre-approval. However, new rules issued by the Housing and Urban Development Department may make it more difficult for you to find pre-approval from big lenders, since the government agency requires lenders to provide the required estimate of their total closing costs done in good faith not later than three days from the submission of a formal application for loan. Borrowers usually make a formal application when the lender issues a pre-approval letter. Pre-approvals are free; don’t deal with lenders who charge you an application or other fee.

Since many of the major lenders are reluctant to commit to an official amount for closing costs due to falling property values, many of them won’t provide pre-approval letters for particular loan amounts, particularly if the borrower has not yet decided which property they will make an offer for. Before a binding estimate is issued, the lender cannot request financial documents such as bank statements and tax returns; the borrower is only required to provide their Social Security number, their gross monthly income as well as the value of the property they’re planning to buy. Because of this, applicants may have more success if they approach smaller lenders since they may be more open to providing pre-approvals.

At the same time, you should ensure that the lender you are working with is reputable and financially sound. So check out any mortgage provider you are planning to deal with first before approaching them. You can try checking out online sources such as the Better Business Bureau to see if there are any consumer complaints about them. If you are acquainted with any local realtors, you can also ask them for recommendations.

Mortgage pre-approval letter

It should be noted that a mortgage pre-approval letter will only state the amount which you are eligible to borrow but not necessarily the interest rate at which the final loan will be given. The lender usually uses the current day’s rates to estimate payments and loan costs; however, once you are actually granted the loan, the actual rate may be different.

Keep in mind that the mortgage pre-approval letter is usually good only for ninety days. If you are still looking at properties after two months you should approach your lender for a revalidation of the letter in order to assuage any concerns sellers may have about your financial situation. If your finances or employment situation have changed since the letter was issued, inform the lender so that they can adjust the pre-approval accordingly.

Finally, note that just because you have a pre-approval from one lender, it does not commit you to having to get the loan from them; the mortgage pre-approval is not a binding commitment but just a conditional assurance that the lender is willing to extend a loan to you.