It's common for prospective buyers to fill out a mortgage application at a lender's office before visiting open houses. Sellers typically anticipate that potential purchasers will have their finance pre-approved and are more likely to deal with those who can provide such evidence.
It is common practice for sellers to require a pre-approval letter from a mortgage lender before negotiating with a potential buyer. Several documents and scores must be presented for pre-approval. Standard mortgage pre-approval letters are good for between sixty and ninety days.
Once a borrower has been pre-approved, the lender will reveal the maximum loan amount, which can be used as a ceiling for the home-buying budget. Getting pre-approved is like getting pre-qualified, but better.
Buyers should go to a lender to learn about available lending programs, be pre-approved for a loan, and work out a repayment plan that fits within their financial means. Lender-provided maximum loan amount serves as a guideline for homebuyer budgeting. An online mortgage calculator is a useful tool for prospective purchasers.
Figure Out Your Regular Payment
The purchase price, down payment, loan length, property taxes, homeowners insurance, and interest rate all play a role in determining your monthly mortgage payment (which is highly dependent on your credit score). Just plug in some numbers to receive a ballpark estimate of what your mortgage payment would be each month. What You Need to Have Ready to Get Pre-Approved for a Mortgage
To get pre-approved for a mortgage, a buyer must fill out a mortgage application and submit supporting documents to verify their income, assets, employment, and credit.
All loans meet Fannie Mae and Freddie Mac standards, except jumbo loans. Those with lower or middle incomes, or those purchasing a property for the first time, may qualify for a certain type of loan. Veterans of the United States military can apply for no-down-payment VA loans through the Veterans Affairs department.
Documentation of Assets
Statements from the borrower's checking, savings, and investment accounts demonstrate the borrower's ability to make the down payment, closing charges, and other associated fees. Loan types can affect how much of a down payment you'll need to make. If the buyer is not putting down at least 20% of the buying price, private mortgage insurance (PMI) is typically required.
Accurate Credit Rating
A credit score of 620 or better is often required to qualify for a conventional loan, whereas the minimum score for a Federal Housing Administration loan is 580. Customers with credit scores of 760 or higher often qualify for the best interest rates offered by lenders.
Below is a chart illustrating the monthly principal and interest payment for a 30-year fixed-rate mortgage for three typical loan amounts, depending on various FICO scores. The Consumer Financial Protection Bureau provides a mortgage calculator that factors in a prospective buyer's credit score, loan type, home price, and down payment amount to get an estimated interest rate.
There is a $2,712 annual difference in the payment amounts for a $250,000 loan made to someone with a FICO credit score in the lowest (620-639) range and someone with the highest (760-850) credit score. The lower payment is $1,288 a month.
Verifying Your Employment Lenders will check a borrower's pay stubs, but they will also likely contact the company directly to confirm the borrower's job and compensation.
The Pros and Cons of Getting Permission Beforehand
Upon receiving a comprehensive mortgage application, a lender has three business days to issue a loan estimate document. It includes information like the approved loan amount, the maximum loan amount, the terms and kind of mortgage, the interest rate, the expected interest and payments, the estimated closing expenses, and the estimated property taxes and homeowner's insurance.
Subsequently, a loan underwriter will get the borrower's information and review it to determine whether or not the loan application is fully approved. In the absence of material changes to the buyer's financial status since pre-approval, the buyer and lender can proceed with the loan closure.
Is There Any Plan B If You Need to Get Pre-Approved?
After analyzing the information provided, lenders will either pre-approve, deny, or pre-approve with the conditions of a mortgage application. The borrower may need to furnish more paperwork or lower existing debt to fulfill these requirements. If a borrower is declined, the lender should explain why and recommend increasing acceptance odds.
A homebuyer with pre-approval for a mortgage has more leverage when negotiating with a seller because they already know they can afford it—buyers who need to apply for mortgages before making offers risk missing out on homes they want.
