How to Get Pre-Approved for a Mortgage: What You Need

Trisha Miller
How to Get Pre-Approved for a Mortgage

Pre-approval of a mortgage loan is a smart first step in the home buying process. It’s not required in order to obtain a home loan, but it can relieve you from a lot of stress when time is running out and you’re ready to commit to buying a particular home. The process of pre-approval sets yourself and the bank (or other lender) up for a planned loan in the near future. The bank checks out your credentials and lets you know how much they’re comfortable loaning you and what price range you should be looking at. It gives you some assurance while you’re looking so that you know a house within your range is one that you will be approved for. In order to become pre-approved, you’ll first need to know what goes into the process. Becoming pre-approved for a home loan involves a credit check, identity confirmation, and proof of income, employment, and assets. Here’s how to get ready for a pre-approval process.

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Check Your Credit Report

Being in touch with your credit report is a fantastic first step before you really dive into the pre-approval process. The fact of the matter is, if your credit score isn’t where it needs to be, you won’t be approved for the loan amount that you really want. I would suggest checking your yearly free credit report to see where your score is and if you’re unhappy with the number, start working on improving that score over the next six months or so.

Being pre-approved for a loan essentially puts a hold on your loan and lets the bank know that you’re good for it. With that being said, having your credit in order is essential to this process, which means that you’ve got to be willing to put in the time necessary to get your credit score in the right zone. Talk with your bank or potential mortgage lender and have them take a look at where you are now. They’ll let you know where you are now and where you should be in order to meet your home loan goals. Need to increase your credit rating to lower your APR? Visit our credit resource center for tips and guides. For help disputing inaccuracies, visit our letter template resource center.

Most of the time, improving your credit takes time. As I mentioned, six months is a good first step toward pushing your credit score into the correct zone. This might be all that you need if you’re quite close to your goal. However, others might need to work for a year or two in order to get their score into that dream home sweet spot. This is why starting to look earlier rather than later is always the best choice. You want to be expertly prepared for the housing market, not stressed and pinched for time.

Proof of Income

When your bank or lender checks you for pre-approval, they aren’t solely going to take your credit score into consideration. They’ll need to know that you make enough money month over month and annually to actually pay your mortgage. They’re going to need solid proof that you’ve got the income to cover all costs associated with owning a home long term.

They’re going to look at your current income and your income history over time to evaluate your financial habits. They’ll want pay stubs and employer information to confirm your monthly income. They may also want to take a look at your W2 information and tax returns to make sure that you’re paying the appropriate taxes and you’re properly signed up as a legitimate employee at your workplace.

Not only is checking your finances imperative to getting a home loan through a bank or lender, but it’s also a great preliminary step for you. Examine your own income and balance your income versus your expenses. If you’re already coming up a little tighter than you’d like, it’s probably time to shift around some of your financial decisions and see if you can make room. It might also help shape the price of house you should be looking out for. You don’t want to be stretched too thinly at the start of every month.

This is also the view that your lender will take as well. If they think you’re stretched too far with your current expenses and other lines of credit, they aren’t going to approve you for additional payments on top of all of that. They aren’t going to want to loan to anyone that is likely to come up short or miss payments regularly. Missing or being late on payments will also lower your overall credit score. So, it’s just best to be prepared and know exactly how much you can handle.

Proof of Assets

Part of the bank or lender understanding the entirety of your income has to do with taking all of your assets into account as well. This could include other savings accounts, other pieces of property that you own (like a car or other home), and supplemental income (like credit cards).

The largest portion of whether or not you can be pre-approved for a home loan does have to do with your main source of income from your employer and your history of paying back loans (your credit score and history). However, other sources of income, supplemental income, and property ownership can undoubtedly help your case.

Lenders will take a look at your income first, then examine your assets. Let’s say you have a scenario where you’re right on the fence of being pre-approved for your dream home loan cost. The bank is pretty sure that you’ll be able to cover the cost, but it can speed up the process (and increase your chances of being approved) if the bank knows you’ll be good for it, even if something unexpected were to happen. This is where your assets will help you out. Having a credit card for emergencies, extra funds in your savings, or the ownership of a car can give you a little push if you just so happened to land in a particularly tight situation. This is why the bank will always ask for proof of every financial asset of yours.

Proof of Employment

Along with your income, your lender will want to know who you work for and what your work history looks like with the company. For example, if you have been employed with a company for a year, that is going to look better to the bank than if you were employed by them for just a month.

This shows the bank that your job is stable and that you are committed as an employee. You’re more likely to stay with the company, which means stable income for the long term future. You’ll need to report your employment status, where you work, and how long you’ve worked there in conjunction with some pay stubs from your employer.

If you have just recently changed employers, that doesn’t mean that you can’t be pre-approved for a home loan. It just simply looks better to the bank overall if you have been at your current job for a while.

Proof of Identity

Lastly, the bank or lender needs to know that you are who you say you are. Millions of cases of identity theft are reported each year. In order to avoid new cases from happening, your lender is going to want to confirm your identity.

In order to access your credit score, they’ll need your social security number, which will go a long way towards confirming your identity. However, fraudulent loans are opened under other people’s social security numbers, so they will want to go a bit further than that.

The bank will need to know basic information, such as your home address, phone number, and date of birth. What’s more, they’ll likely need a photocopy of your driver’s license or passport. They’ll want another strong piece of information, other than your social security number, that confirms who you are, which is why a photo ID is routinely used.

Make sure that all of the information you’re giving out to them is up to date (not expired) and contains relevant, current information about yourself. This will also stop anyone who isn’t you from going to that bank or lender and opening up a fraudulent account. If they can’t verify the information that you’ve already provided, the lender will know that something fishy is going on.

When you’re ready to commit to owning a home, pre-approval will help you get into your desired home loan range. Check with your lender ahead of time and let them know about your homeownership plans. Be prepared with all of the above information in order to make the process go as smoothly as possible. If you take the time to come properly prepared, be ready for a much easier and enjoyable home buying experience.

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