Looking for a new home then it is obvious you are to start from lender’s office. When you get into the mode of a serious home buyer, you are expected to know the mortgage pre approval process. As a prospective buyer consulting the lender and getting a pre-approval letter will benefit you. Initially, the lenders can discuss with you the available opportunities and loan options. Moreover, the lender after analyzing the credit can alert the potential buyers about the problems likely to occur. If you are one of them then here is something you cannot afford to miss out, give it a read.

Mortgage Pre Approval Process

Mortgage Pre Approval Process

When you meet the lender, you are about to get a faint idea of the price range of loan you probably are eligible. While doing housing payment look for your comfort level and do not get into higher end immediately. Finally, the home sellers expect a pre-approval letter from the buyers and are likely to negotiate with the people with a loan guarantee.

Pre-approval Vs. Pre-qualification

Pre-qualification of the mortgage is an estimate of the amount that you can spend on your new home. Whereas, obtaining a pre-approval from the lender means the lender have gone through the credit, verified your documents and have approved a specified amount of loan. Usually, it is done for a certain period say about, 90 days. The final approval of loan occurs when it applied to a particular property, and you have an appraisal done.

Pre-approval Do Not Guarantee Bank Loan

The pre-approval does not guarantee loan rather you are just approved to get a loan in case if something goes wrong. The bank is committed to giving you a loan once the bank finds the house has a higher market value in the home market. In case you default on the loan, the bank is been protected with the value of your asset. Banks can evict you from the property and sold it to get their amounts back. Additionally, before approving your loan banks also check the title of the property to make sure it is clear and may deal without any hassles for further proceedings. Getting only the pre-approval does not leave you with bank loan but make sure you are in line with the bank guidelines and your papers depict the same.

1. Income Proof

“Documentation” and “verification” are no things of past for loan approval. The borrowers need their W-2 statements of the past two years. Additionally, the recent documents that can serve you as income proof as well as updated annual proof. And two most new tax returns. If there are any additional incomes such as bonuses or alimony, get their proof.

2. Proof Of Property

Your investment account statement and bank statements serve as your asset proof. It is the source of down payment, cash reserves, and closing costs. The Federal Housing Administration loans offer a low down payment of 3.5% of the cost of the home. On the other hand, the conventional home loans may have 10% to 20% depending on the loan program. While if you are receiving money from relative or friend who can get the down payment then you need a gift letter as proof to prove the amount to be not part of the loan.

3. Credit Score

A credit score of 740 or above then you are eligible to obtain a loan at lower interest rates. For credit score less than this then borrowers are required to pay little extra interest or need to pay additional discount points to lesser the rate. In recent times, the Federal Housing Administration have stiffened the rules making the credit borrowers with a low score below than 580 are mandated to pay large down payments. To get FHA loan approved most of the lenders require 620 credit score. Remember, lenders prefer working with borrowers of low or fairly low credit scores and advice them with few ways to improve their score.

4. Employment Check

The lenders do not stick on to the income verification documents and other details provided they speak to your employer to check your employment status and salary. If you are a newbie at your workplace, then the lender is likely to speak to your previous employer. Lenders make sure the borrowers who obtain loans from them are employed and have a stable income. Self-employed borrowers require other paperwork concerning your income and business to prove your income.

5. Documentation

Your Social Security Number, driving license, and your consent to allow the lender to access your credit report. Before the pre-approval session, get equipped with all the required documents and paperwork. The more you cooperate in the process, the quick and smooth is in the due course.

Before proceeding with the buying process, consulting a lender to get estimate can help you in the future and prevent you from getting into trouble. Take the hard copies of bank account statement and quicken the process of required paperwork. Keep things organized to make it easy for your future reference and also organized things complete the process quickly.

The Other Essentials You Have To Know

  • Improve your credit scores. The payment history, length of credit history, recent credit inquiries, type of credits utilized and outstanding debt are the factors determining your credit score. When you are hunting new home and looking for home loans, concentrate on these factors. Get the favorable scores so that the lenders are allured to offer you huge amounts.
  • Check the credit report, if you find any errors correct them quickly as it may affect your credit score. The red flags in the credit report are analyzed, some of them being missed payments, charged-off debt, or late payment.
  • Enhance your debt-to-income ratio to accomplish this decrease the overall debt. Generally, the debt-to-income ratio of 36 percent or less is preferred. 43 percent is the higher limit of ratio that can be allowed.
  • To get a larger loan increase the down payment amount. You are eligible for huge loan amounts if you pay a large down payment.

Lenders are the ones who can provide you with the right guidance. Approach them to get to know few tips on getting your home loan approved.