November 27, 2014

A Brief Guide to Pre-Approved Mortgage

A Brief Guide to Pre-Approved Mortgage

If you plan to purchase a home, even before you get started, you should get a pre-approval for your mortgage because at some point, sellers are going to ask you for this. But before that, let’s get to know first the basics of pre-approved mortgage.

What is a pre-approval?

A pre-approval, in the real estate lingo, pertains to a preliminary commitment in writing from a lender stating that a borrower would qualify for a certain loan amount based on different factor’s set by the lender. A pre-approval holds much more weight that just a loan pre-qualification, which is only an estimate of the amount you can borrow.

Why should you get a pre-approval?

It’s important to get a pre-approval for several reasons:

  • The most important reason why you need to get a pre-approval is that it helps you determine the amount you can spend on a home and the size of mortgage you can be able to obtain.
  • It gives you an advantage during the time to bid on a property. In other words, you’re ahead in the competition.
  • This helps ensure that you only look at houses that you can certainly afford based on your price range.
  • Helps speed up the home buying process once you find the home you want to purchase.
  • Most bank-owned homes require a pre-approval letter from the lender before they accept your offer letter.

What are the things you need to be approved for a mortgage?

  1. Proof of income. All borrowers need to prepare W-2 statements from the past two years, latest pay stubs showing income and year-to-date income, along with proof of any additional income.
  2. Proof of assets. You will need to show bank statements and investment account statements to show that you have funds necessary for the down payment, closing costs, and cash reserves.
  3. Good credit. A lot of home lenders usually provide the customers with excellent credit score of 740 or above with the lowest interest rates.
  4. Employment verification. A lender does not only check you proof of income, but will also call your employer to verify that you’re still employment by the company and to double check your income.
  5. Documentation. A lender will ask any identification like your driver’s license and your social security number to pull a credit report. 

How do you get a pre-approval?

Applying for a home loan pre-approval is similar to the usual home loan application process. You will have to begin the process with talking to a few lenders to know which loan suits you best in your financial situation. Hence, you will need to show what you earn, what you own, and what you owe – these are the requirements mentioned above. Normally, the pre-approval process takes 24 to 48 hours to obtain a letter.

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