13 Tips On How To Get Preapproved for a Mortgage

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If you think you’re ready to take the big leap into home ownership, there are a lot of things you need to do to prepare, but one of the first is to seek preapproval for a mortgage.
Preapproval is an important step that helps provide assurance to everyone, from the lender and the seller to you, as you have a solid idea of how much you’ll be paying on the mortgage each month, among other things.
If you’ve never purchased a home, it’s important to know what you can do to increase your likelihood of preapproval. Experts explain how.
Understand Your Debt-to-Income Ratio
Realtor Kyle Ebersole said that getting pre-approved for a mortgage is not as intimidating as it appears.
“A mortgage broker will take into consideration your income and debts to calculate what is called a debt-to-income ratio. They’ll calculate your current income, current debt and what your new mortgage payment amount will be; what this number produces is your debt-to-income ratio,” he explained.
While different lending programs allow for different debt-to-income ratios, they range from 30% to 56%, he said. “During the application process, they will ask you to submit your previous tax records, W2s or 1099s, pay stubs from [your] current employer, debt payments [and] how much cash you have in a bank account, and they will run a credit report on you.”
Eliminate Any Debts Possible
Pay off your credit card, pay off your car loan, eliminate some student debt or refinance to a different monthly payment amount, Ebersole said. “The debt-to-income ratio is determined by monthly payments. Therefore, whatever you can do to eliminate monthly payments on anything is crucial.”
Don’t Finance Anything New
If you know you want to buy a house in the near future, resist the urge to buy anything on credit, Ebersole warned. “Pay cash for a new car, new furniture, etc. That $100 a month payment may not seem large, but it can have thousands of dollars of consequences on your preapproval amount. I have personally seen a $200 monthly payment affect a preapproval to the tune of $40,000 less.”
Save as Much as You Can
Since you will need to pay closing costs out of pocket to purchase a home, the less cash you have, the less you will get preapproved for, as you won’t have the cash necessary to close, Ebersole said.
Talk to a Lender Sooner
If you have any concerns at all about qualifying credit or income, you should talk to a lender sooner rather than later, according to Mason Whitehead, branch manager at Churchill Mortgage.
He said it’s not uncommon for him to talk to clients a year or more in advance of their plans to buy, so they can budget, save and possibly work on their credit.
“Otherwise, if your credit is good and you’ve got solid savings and job stability, I’d say three to four months before you want to start looking for a home is when we should start the loan process. Once we pull a credit report, it is typically good for 120 days, so about four full months. Ideally, we want to be within that timeline when we start the process,” he said.
Know Your Credit Score
Before you start the process of getting preapproved for a mortgage, it’s important to know your credit score, according to Ryan Nelson, founder and CEO of RentalRealEstate. “This will give you an idea of what kind of interest rates and loan options you may qualify for.”
You can request a free credit report from each of the three major credit bureaus — Equifax, Experian and TransUnion — once every 12 months, he said, at which point you can review your credit report for any errors or discrepancies that may affect your credit score.
Pulling the report will help you take steps, as well, if you need to improve your credit score.
Save for a Down Payment
While some loan programs allow for lower down payments, having a larger down payment can increase your chances of getting preapproved for a mortgage and could result in better loan terms, Nelson said. “Start saving early and aim to have at least 20% of the home’s purchase price for a down payment.”
Additionally, having 20% down will typically prevent the need to take out private mortgage insurance (PMI).
Gather Necessary Documents
Nelson explained that to get preapproved for a mortgage, you will need to provide various financial documents such as pay stubs, tax returns, bank statements and any other relevant paperwork. Don’t be caught off guard in the preapproval process by having to dig up paperwork that the lender will request.
“Make sure to have these documents organized and ready to go when you meet with a lender,” he said.
Don’t Make Any Major Financial Changes
During the preapproval process, it’s important to maintain stability in your finances, Nelson recommended. “Avoid making any major purchases, opening new credit accounts or changing jobs, as this can affect your preapproval status. Lenders want to see consistency and reliability in your finances.”
Be Prepared for a Home Appraisal
After getting preapproved, the next step is usually a home appraisal, Nelson said. “This is where a professional evaluates the value of the property you are looking to purchase. The results of the appraisal can affect your mortgage terms and loan amount, so it’s important to be prepared for this step in the process.”
Give the Seller Confidence
Remember that preapproval isn’t just for the buyer to know how much they can afford, Whitehead said. “When it comes to actually going shopping for a house, the seller needs to know that your financing/mortgage is ready to go, and you won’t have any issues qualifying to buy their home.”
He said it is very frustrating for a seller to accept an offer and take the home off the market for up to 30 days, only then to find out at the end that the buyer does not qualify.
Understand Prequalification
There are actually three levels of pre-qualification/pre-approval, Whitehead said, with terms that get used interchangeably, but are quite different.
Prequalification is the lowest level of approval, he said. “At this level, the lender has checked the client’s credit report and had a conversation with him/her about their income. Nothing has been verified yet.”
Aim for Full Preapproval
Preapproval is where most lenders stop, Whitehead said. This is when the loan officer reviews pay stubs and bank statements, along with the credit report, and decides if the person is qualified.
“The problem here is you don’t know the experience level of the loan officer, and if they asked the right questions, correctly viewed and calculated the borrower’s income or reviewed the buyer’s tax returns correctly,” he cautioned.
Moreover, he said, a loan officer has no approval authority, so hearing “you’re approved” from them carries no weight.
It’s not a full preapproval until it’s had a “hard” credit pull, Whitehead said, which will show up on your credit report.
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