If you are considering buying a home or condo, one of the first steps that you should take is to get pre-approved for a mortgage. Mortgage pre-approval is the process of consulting with a lender to determine how much money you qualify for and what loan options are available to you given your financial situation. If you are pre-approved, a lender will provide you with a pre-approval letter outlining how much you are qualified to borrow as long as the home meets certain criteria, and your financial situation does not change drastically.
Seeking pre-approval for a mortgage before you start the house hunt is critical, as meeting with a lender can give you a better sense of how much you can afford to spend on your dream home. Additionally, having a pre-approval letter in hand will show buyers that you are serious, helping you to stand out in a competitive market.
Yet, if you have never bought a home or condo before, you may find yourself wondering how to go about getting pre-approved for a mortgage. To help get you started, here is an overview of the steps that you should take when seeking mortgage pre-approval.
Check Your Credit Report
The first thing that you should do before you even start looking into mortgage options is to check your credit report. Lenders will do a credit check before they decide whether or not to approve you for a loan, so it is important that you check your credit report to make sure that there are no errors that could affect your chances of being approved. Fortunately, Equifax makes it easy for you to obtain a copy of your credit report online.
During your credit check, lenders will look at not just your credit score, but also your credit utilization ratio (which is the amount of credit you're using relative to your total credit limit) and they will also look for anything negative on your credit history such as missed payments. Knowing your credit score and history can help you know where you stand before you talk to lenders, as the higher your credit score is, and the lower your credit utilization ratio is, the better the mortgage rates you qualify for will be. If your credit score is not where you'd like it to be, you may want to consider paying off some debt before you start the home-buying process, as a credit score of at least 620 is recommended when applying for mortgages.
Gather Documentation
During the pre-approval process, lenders will need access to a variety of personal and financial documentation as they assess your income, assets, debt, and creditworthiness when deciding whether you qualify for a mortgage. Being prepared in advance by having as many of these documents ready when you start meeting with lenders can help to simplify and speed up the application process. Documents you should gather before meeting with lenders include:
- Letter of employment.
- Your most recent pay stubs.
- Copies of your tax returns from the last two years.
- Three months' worth of bank statements.
- Letters from anyone giving you a gift to use as a down payment.
- And several forms of identification including your driver's license and Social Security number.
Research Lenders
Next, take your time when researching possible lenders in order to find a good fit. Ideally, you should sit down with multiple lenders to ask questions about rates and mortgage options, as well as to find out what loans may be available to you by getting pre-qualified. Take notes on each lender to help you narrow down your options, as a good lender will be attentive and help explain your mortgage options to you.
Apply and Compare Offers
Once you have narrowed down your options to a few lenders you would feel comfortable working with, you should submit several pre-approval applications. Comparing offers from multiple lenders can help you compare rates and fees, which could help you save a substantial about of money over a 30-year mortgage.
Getting pre-approved for a mortgage as you start the process of buying a home or condo will ensure that your financing is in order should you find a house that you want to make an offer on. Feel free to contact us to learn more about the process of applying for a home loan
