Tracking every house you find online is exciting, but it can be disappointing if you don’t know your budget or the type of
financing you can qualify for.
When you get pre-approved for a mortgage, you have an idea of what a bank is willing to loan you, and it shows sellers that
you are ready to commit.
Do yourself a solid favor and get pre-approved, you will totally thank yourself for having that pre-approval in hand when you are ready to put in an offer on a home.
Three-step process to get your pre-approval:
Step 1: Pre-Qualify 🆗
When you first talk with a lender, they might pre-qualify you over the phone. This is a tentative estimate based on what you verbally report. None of the information you have shared has been verified or proven.
This is like creating a rough draft. It is based on estimates, what you think you might have in monthly income, round numbers, and numbers that might be in the ballpark of reality.
Step 2: Submit requested documentation 📄
The lender will ask you to submit different kinds of documents like pay stubs, bank statements, and or income tax records. They verify your financial information.
Many buyers delay their buying process by failing to submit documents in a timely fashion.
Step 3: Pre-Approval ✔️
Once the lender verifies the information you have submitted, the lender is willing to commit to making a loan, if all other conditions are met.
You’ll be given a pre-approval letter. This is a letter from the lender indicating you qualify for a mortgage of a specific amount.
You will have reached a milestone towards your goal of buying a home. 🏁
We will submit this pre-approval letter with your offer to show the seller how serious and qualified you are.
Two Mistakes to Avoid
Two mistakes to avoid regarding shopping for a home when you need a mortgage:
- Get pre-qualified without getting pre-approved!
- Start the process but never submit the documents.
Now that you know, make sure you are not only pre-qualified but also pre-approved!
Q. How does a pre-approval help me buy a home?
Here are four key reasons why it’s important to get pre-approved for a mortgage.
1. It pinpoints a price range.
Knowing what your buying power is with a lender justifies the budget you have in place or encourages you to reconsider it, because you learn how large a loan you would qualify for based on your financial history and available money.
2. It narrows down the neighborhoods you should consider.
When you know your budget, you also know what areas you can afford. This will save you a lot of time and energy because you can focus on the neighborhoods that are actually in your price range rather than areas that would ultimately make you house poor.
3. It makes you look good to sellers.
Sellers are motivated to sell their homes and are unlikely to select an offer without this pre-approval. Sellers will appreciate it if you are pre-approved for a mortgage before you see their home because they will see a READY, WILLING AND ABLE buyer.
It speeds up the home-buying process. Receiving a mortgage pre-approval beforehand, you’ll have fewer major hurdles to overcome when you decide to make an offer.
4. It saves time.
You won’t spend your time looking at properties you can’t afford. You won’t waste a seller’s time and effort with houses out of your budget. You’ll save and respect my time by allowing me to show you houses that you can purchase.
Now that you understand the importance of a pre-approval, please take some time to speak with the lender and provide the necessary documents if you haven’t already.
Q. Why might I not get pre-approved?
What happens, though, if you aren’t pre-approved for a home loan? There are a few different problems with your financials that could stop a lender from feeling comfortable giving you money for a home.
Here are 5 issues that can make it so you don’t get pre-approved for a mortgage.
Bad Credit Score.
Your loan officer or bank will pull a credit report. When you have a lower credit score, it means that you may have missed payments, had a bankruptcy, too many credit cards open, or haven’t had them open long enough.
Incorrect Credit Report.
If you’re going to be buying a home, it’s a great idea to use your one free credit report to check up on any incorrect information and get it fixed before trying to apply for a loan. However, if you don’t look at your credit report and you are not pre-approved, you should look at your credit report to see if there are any problems. If there’s something on your credit report that isn’t accurate, you can dispute them.
Too High of a Debt to Income Ratio.
A mortgage lender will look at how much income you have coming in versus how much you have to pay each month on your accumulative debts. Most lenders want a debt-to-income ratio of 36% for all of your debt, and 28% for your housing. The best way
to fix this issue is to get rid of some of your debts before trying to purchase a home.
Too Low of a Down Payment.
If you’re only able to give a very small down payment, mortgage lenders may look at how much your payment would be for each month, and see that it is too high for your debt-to-income ratio. The higher your down payment is on a home, the lower your monthly payment will be. If you can’t pay a high down payment, you may have too high of payments for your income.
Employment Changes.
If you’ve recently changed jobs, or you’ve been bouncing around from job to job over the last few years, this may reflect badly on your pre-approval. Lenders want a dependable income that they can get paid monthly. If it seems as though you may not have the same income six months from now, they will be worried about lending you money for a mortgage.
What happens next?
You may have to take action on the recommendations that the lender gives you, such as correcting inaccurate information on your credit report, paying down a loan, or removing yourself from a co-signed loan with another family member.
At worst, you might have to postpone your plans to buy a home for another year or two. At best, you might be able to experience a
short delay. Your loan officer can tell you the steps.
If this happens, please talk with me about what steps you need to take.
