If you’re serious about the home-buying process, getting preapproved for a mortgage is a key step!
In the mortgage preapproval process, the mortgage lender goes over your credit history, and verifies your personal, financial and employment information. Essentially, it’s a promise from the lender that qualifies you for a particular amount of money at a certain interest rate, subject to purchase contract, appraisal and asset documentation.
How Does A Mortgage Preapproval Letter Help You In The Home-Buying Process?
A mortgage preapproval should be among the first steps you take, because it gives you an idea of how the type of house you can afford and alerts you of problems that can possibly affect your ability to get a loan.
The preapproval letter makes you attractive to sellers, showing them that you have the borrowing abilities to back up the offer you make on the property.
However, keep in mind that mortgage pre-approval doesn’t guarantee that your loan will be approved by the lender.
Mortgage Prequalification vs. Mortgage Preapproval
Pre-qualification is ideal when you aren’t financially ready to buy a home. The difference between prequalification and preapproval is in the depth of the lender’s research.
In the prequalification process, the lender goes over your income, debts and assets without verifying the numbers. “Based on the numbers you told us, you may qualify for this amount of loan.”—it’s a rough estimate.
On the other hand, mortgage pre-approval involves a thorough inquiry of your finances. The lender verifies the numbers by pulling your credit history and financial information before giving you a preapproval letter.
Steps to Getting a Mortgage Preapproval Letter
Understanding the mortgage preapproval process helps you manage your finances better.
Check Your Credit History
Make sure you’re aware of where you stand before reaching out to a mortgage lender.
Your credit scores play a major role in the approval process and the percentage of interest a lender charges you. A healthy credit score—typically in the mid 700s or higher—will certainly improve your chances of getting better mortgage rates.
Of course, you can try to boost your credit score—if there’s room for improvement—through timely payments and paying down debt.
Gather Your Documents
Since lenders need to verify your financial information, make sure all your documents are in order. Gather the following documents before applying:
- Proof of income
- Bank and investment account information
- Current pay stubs
- Federal income tax returns
- Identification, such as your driver’s license
- In case your down payment will come from the sale of an asset or inheritance, you’ll need to prove it with a paper trail.
Research Different Mortgage Lenders
Since it can take years or even decades to pay off your mortgage, it pays to choose the right financial partner. Comparing lenders can save you in interest payments!
Choose a lender that’s communicative and trustworthy, ask any questions you have and make notes of the customer experience.
Get in touch with them today for more information.