How to Get Pre-Approved for a Mortgage

Pre-approval is an important first step in the home buying process, especially for the first time home buyer.  Many people will start off looking for homes online and getting figured out exactly what you want only to find out later that you may or may not be able to afford what you are looking at.  Once your expectations are set so high it is difficult to adjust to homes that are available in your price range.  Finding out first home much home you can afford will put you in a much better position and save you a lot of time. 

One note I want to point out at this time is just because a lender approves you for a $300,000 home, doesn’t necessarily mean you shouldn’t consider homes less than that.  One big mistake that many people have taken in the past is they buy as much home as they can and they struggle to make all of the payments every month and therefore have to cut back on savings and everyday luxuries and necessities that they are used to.  Always leave yourself some wiggle room and make sure you are comfortable with your payments and are still able to save a little each month.

Now back to getting Pre-approved.  Pre-approval is better than getting pre-qualified.  A mortgage lender is able to pre-qualify you with limited information, but going ahead and getting pre-approved gives you a leg up when you make an offer on the home you decide on.  Pre-approval means the lender has verified many more things and you are essentially approved for the loan with minimum conditions left to meet.  Your offer will look stronger with a pre-approval letter.

 Here are the steps and the necessary information and paperwork a mortgage lender will ask you for:

1.     Choosing a Lender

First thing you need to do is get in touch with a mortgage lender.  Many people’s first option is their current bank or who they have their current home loan with.  If you are a first time home buyer you may want to consider a parent’s mortgage lender or a recommendation from a friend who has a mortgage lender they trust.  Another good option is to get a few options from a Realtor.  Realtors have many lenders that like to earn their business and will generally work hard to make sure a Realtors client they send to them is well taken care of.

2.     Loan Application

The Mortgage lender will need you to fill out a loan application.  Many lenders now have this available online for you to fill out or can send you one by email.  You can also either meet them at their office even talk to them on the phone and they can fill out the information for you.  It is usually a simple process that will only take 20 to 30 minutes.

Here are some questions that many lenders applications will ask:

• For your street address, e-mail address, phone and Social Security number. If you've lived at your current address for less than three years, the lender will want to know where you lived before that. If you are buying this home with another person or persons, they'll probably want to know your relationship to the co-borrowers.
• Whether you currently rent, own or live with family.
• How many dependents you have.
• Your annual income.
• Your occupation, employer and how long you've been employed there. If you've been with the company for less than two years, it will ask where you worked previously.
• Your assets -- what you own and what it is worth. This includes your current home and other property, checking and savings accounts, stocks, bonds and retirements accounts.
• Your liabilities -- how much you owe, to whom and how much you pay every month.
• Whether you have filed for bankruptcy in the last 10 years.
• Whether you are behind on any bills.
• Whether you are a first-time buyer.
• Whether you are buying a home as a residence or rental property or, in the case of a duplex or other multi-family unit, both.

You may not need them immediately but eventually you will need your W2s, pay stubs, bank statements, brokerage statements and more. So it's never too early to start a file and fill it up.

3.     Credit Report/Score

With your social security number, full name, and address all of your past financials is complied and rated.

The higher the score the better a 750 score and above your at the top of the list, 680 and above you are in the game but may have hoops to jump through for a better interest rate, below 650 you can still get a mortgage usually at a much higher interest rate.

You may want to consider getting a credit report on your own before speaking with a lender.  You are entitled to a yearly free credit report from each of the main three reporting agencies.  You can go to www.annualcreditreport.com to get yours.  If you are married you would want to get it for you and your spouse.  By getting this ahead of time you may be able to find errors that you can work on correcting before you contact a lender.  Many lenders can also help you find these errors and advise you as to how to correct them to get where you need to be.

4.     Answer Questions and Provide Documentation

Depending on how complicated your finances are you may receive your pre-approval in a couple of hours or it may take days.  If you have held the same job for 10 years and have no credit card debt, two car payments, and a simple financial portfolio it may only take an hour, but if you have changed jobs 5 times in the last 5 years, have many credit cards with debt, late payments, etc., it may take as long as a week or two to get pre-approved.

Be ready to provide tax returns, W-2’s, bank statements, etc if the mortgage lender needs it to produce the pre-approval.  The quicker you can provide all the documents and information the faster the pre-approval process will go. 

In today’s lending market the rules are changing constantly and mortgage lenders are having to request more to get loan approved by the underwriters so do not let the loan process frustrate you if additional questions or requirements come up.  This is just a sign that the lending institutions are now researching people better to make sure they are lending as they should so we are able to get out of the current financial mess we are in.

5.     Get your Pre-Approval Letter!

Once the lender sends you the pre-approval letter you are ready to provide this to your Realtor and start house hunting!  Your Pre-approval letter will usually state what price home you are pre-approved up to and sometime the type of loan program and at what interest rate you are pre-approved for.  You may also want to ask how long your pre-approval letter is valid for – typically this can be anywhere from 30 to 90 days.  Most lenders will extend the pre-approval once the time runs up but they may require for your credit to be checked one more time before they extend it.

Now you are a qualified buyer and are ready to seriously begin searching for your new home!  Once you have reached this step the fun stuff begins.  Now you need to make sure you choose the right Realtor to represent you in purchasing your home! 

Click here to go to the next section about choosing a Realtor to help represent you!

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