Are you starting the process of buying a home? It's essential to know just how much you can afford. You can shop smarter and make better offers when you get pre-approved for a mortgage.
So, what is mortgage pre-approval, and what is the mortgage pre-approval process? We’re here to give you the inside scoop!
What Is a Mortgage Pre-Approval?
Mortgage pre-approval is the process of determining the amount of money that you can borrow to buy a house. To get pre-approved, lenders will evaluate your income, assets, and credit score. They'll decide what loans you could qualify for, how much money you can borrow, and what your interest rate will be.
Why Is It Beneficial To Get a Mortgage Pre-Approval?
Here at BlueWest Properties, we always recommend that homebuyers consult with a lender, obtain a mortgage pre-approval letter, and determine their loan options and budget. After the lender provides you with your maximum loan amount, you can set your price range for buying a house.
By getting pre-approved, you'll save valuable time and effort by identifying how much you can afford. This will help you accurately target your home search at your designated price level. Plus, you'll have more bargaining power when negotiating since you'll already have mortgage financing and know that your offer is reasonable.
Getting mortgage pre-approval is the only real way to know what kind of house you can purchase and how much money you can borrow for your home loan.
What Are the Steps in the Mortgage Pre-Approval Process?
Pre-approval is based on a combination of your FICO credit score, debt-to-income ratio, and other factors. To get pre-approved for a home loan, you'll need to gather personal information and documents and complete a mortgage application. What you need to get pre-approved for a mortgage include:
1. Proof of Income
Potential homebuyers need to provide copies of their W-2 wage statements, tax returns from the past two years, current pay stubs displaying income and year-to-date earnings, and proof of any additional income sources (alimony, bonuses, etc.)
2. Proof of Assets
A potential homebuyer's bank or investment accounts could prove they have enough funds for a required down payment and closing costs. Examples of your assets could include bank statements, retirement account statements, or brokerage statements.
3. Credit Score
Your credit score is one of the first things you should be aware of when considering buying a home. Most lenders require a FICO score of at least 620 to be pre-approved for a conventional loan. If you're looking for a Federal Housing Administration loan, you'll need a score of 580. If you have a score of 760 or higher, you could qualify for significantly lower interest rates.
4. Employment Verification
Proving your employment is crucial when you're applying for pre-approval. Not only will lenders verify your job through pay stubs, but they're also likely to contact your employer directly to confirm.
If you’re self-employed, you can provide additional information, such as the stability of your income, the location and premise of your business, your business’s financial strength, and more.
5. Additional Documentation
In addition to the information listed above, you’ll also need to provide important legal documents to get approval for a loan. Examples of these documents include a driver’s license, Social Security card, and authorization to allow the lender to pull a credit report.
What Do I Do After I Apply for Mortgage Pre-Approval?
After you've submitted all your information to the lender, you can most likely expect to receive a response within three business days. This time could be shorter if you use an online mortgage lender. When you hear back, you'll know whether or not you've been pre-approved. If you are pre-approved, you'll also know the loan estimate amount.
It’s important to note that mortgage pre-approvals are only good for 60-90 days. Once you’re pre-approved, it’s important to start shopping for your new home before you need to begin the mortgage pre-approval process over again.
The best time to get pre-approved for a mortgage is at the start of your home-buying journey. If you know you're in the market for a new property, apply as soon as possible to get an accurate early picture of your mortgage options and prove to agents you're a serious buyer.
Find Your New Home With BlueWest Properties
The mortgage pre-approval process is important, but it can be tough to figure out on your own. If you need help working through the details, we’re here to help you every step of the way.
Are you already pre-approved? The next step is contacting a real estate agent and shopping for your dream home! Contact a trusted real estate agent at BlueWest Properties. With years of real estate experience, we'll be able to help you find the perfect home for you.