Before you start looking for your dream house, you first have to speak with a lender and get pre-approved for a mortgage. Obtaining pre-approval for a loan helps you concentrate on finding a house that is within your budget. Doing so will help you rein your finances while finding the perfect property for you and your family.
In addition, getting pre-approved for a mortgage will help you take a step forward in your home buying process. For one, sellers will take you more seriously because they don’t have to be worried about whether you will qualify for a mortgage or not. This article serves as a simple guide for first-time homebuyers for getting pre-approved.
What Does Getting A Pre-Approved Mortgage Mean?
Pre-approval is a promise from the lender that you are qualified to borrow a particular amount of money at a specific interest rate. There are various factors that need to be considered when getting pre-approved, such as your employment history, credit history, and your current financial situation. In this process, the lender will scrutinize your credit and confirm your income. The lender will then provide you with a pre-approval letter that states your loan will be approved once you decide to make a purchase offer on a property and once you submit all the required documents.
Keep in mind that getting pre-approved is not a guarantee. Even with a pre-approval letter, you might still be denied a mortgage for different reasons, such as a change in your financial situation or the appraisal of the house you want to purchase is less than the amount you want to borrow. The list below will help you learn more about getting pre-approved.
How Do I Get Pre-Approved?
Speak With Mortgage Lenders:
It is crucial to first talk to mortgage lenders and inquire about their pre-approval process. Most lenders will have you fill out an application so that they will be able to assess your financial stability and employment status. You might also need to prepare the following:
- Tax returns
- Bank statements
- Credit report
- W-2 forms
These documents will help the lenders verify your financial status. With this information, the lender will determine if you qualify for pre-approval for a loan.
Increase Your Savings:
If you have bigger savings, you will be able to have a bigger deposit. This will increase your chance of getting pre-approved and lower your interest rate. As a tip, you should schedule a budget and figure out how you can get rid of other expenses. The money you spend on these unnecessary expenses could be added to your savings account.
Reduce Your Debt:
Before applying for pre-approval for a mortgage, you need to reduce any debt you have. Doing so will help maximize the amount you can borrow and increase your chances of getting pre-approved. Most lenders will consider your income-to-debt ratio when determining whether they should lend you money. Therefore, if you have a lot of debt, it will affect your chances. As a tip, you should pay off your credit card bills, close the credit cards you don’t use, and reduce your overdraft.
Maintain A Good Employment History:
It is very important that you have a good employment history. If possible, stay with one employer longer so that you will appear more stable to lenders. You should consider applying for pre-approval after working for the same employer for at least half a year.
Improve Your Credit Score:
You should also do what you can to improve your credit score. One way of doing this is to avoid taking out new loans until you purchase a property. It is also advisable to get your credit report so that you can evaluate how you will improve it. Make sure that there are no mistakes in your credit report. Don’t get penalized because of another individual’s mistake. If you think there are mistakes or problems in your credit statement, you should report it at the earliest possible opportunity.
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Kris Lim is a financial adviser and blogger. In this article, she offers a few tips for getting pre-approved for a mortgage.