What is a pre-approval?
A pre-approval is a commitment in writing from a lender that a borrower would qualify for a particular loan amount based on income and credit information. Most pre-approval letters are good for 60 to 90 days.
Why you should get pre-approved?
There are many reasons why you should get pre-approved. The most important reason you should get pre-approved early in the process of purchasing a home is that you will get an accurate idea of how much you can afford. This will ensure that you only look at houses that are truly in your price range. A pre-approval letter is also essential in a competitive real estate market. If you make an offer on a house without a pre-approval, your offer will not be taken as seriously as an offer from another person with a pre-approval and you could lose out on purchasing the house of your dreams. Additionally most bank-owned homes will require a pre-approval letter from a lender before accepting an offer.
What is involved with getting pre-approved?
In order to obtain a pre-approval letter you will need to contact a lender. You will typically be approved in 24 to 48 hours if you provide the lender with all the necessary paperwork.
Documents you’ll need to provide to get a true pre-approval
- Your W2 from the past two years
- Your paystubs for the past three months
- Your tax returns from the past two years
- Your checking or savings bank statements for the past three months (this will likely have your down payment funds in them as well)
- Your statements for all your other assets (stocks, bonds, retirement accounts) for the last two months
- The name and phone number of your landlord (if you are renting) or your current mortgage documents
- Your divorcee decree, if applicable
- If you are self-employed: Your business tax returns for the past two years in addition to your year-to-date profit and loss statement and year-to-date balance sheet
Credit Report and Credit Score
The lender will also pull your credit report and score for you and your co-borrower (if you have one.)
The lender will analyze your credit report for any red flags such as late or missed payments or charged off debt. Your credit score will affect your ability to qualify for a loan and determine how low of a rate you can get. Generally a score above 720 will get you the most favorable mortgage rates. Your overall debt (minimum credit card payments, student loan payments, car payments, etc.) will be analyzed to calculate your overall debt-to-income ratio. You will also need to provide any alimony or child support payments you are required to pay.
What if I can’t get pre-approved?
There are three areas you will likely need to work on if you are not able to get pre-approved from a lender:
- Correcting any errors on your credit report and raising your credit score
- Decreasing your overall debt and improving your debt-to-income ratio
- Increasing your down payment amount in order to qualify for the price of the house you want
Be sure to ask your lender for tips on how you can improve your chances for qualifying for a loan.
I can also connect you to a qualified & trusted mortgage professional who can discuss your situations and your options & get your pre-approved!
Call (210)-897-2645 or shoot me an email today!
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