Whether you’re a first-time home buyer or you’ve been through the process before, you will need a mortgage pre-approval in order to start shopping for your dream home. A pre-approved mortgage is more than just an estimate of what you could be loaned — it is an agreement by your lender to loan you a specific amount of money, should your home offer be accepted.
In order to be pre-approved for a mortgage, you’ll have to have an idea of what you want to spend, what kind of monthly mortgage payment your income allows, and you’ll need a good enough credit score to be approved for a home loan. Once you have your pre-approval letter, you will usually have anywhere between 90 and 180 days to shop around and make an offer.
It’s important to be crystal clear on how long your pre-approval lasts, when you should get it, and how to optimize your finances so that you can make an informed and competitive offer when you find your next home. .
How to Apply for a Pre-Approved Mortgage
Your pre-approved mortgage application will look different depending on what lender you decide to go through. Many lenders and banks will have an online application for you to fill out to get started, but there are a few common requirements that you can expect to find on your mortgage pre-approval application:
- Your credit history;
- Your household income;
- Your Social Security number;
- Your employment history;
- The amount you’re looking to borrow.
If you are co-borrowing your loan with a partner or spouse, you will also need their information to complete your application. You can expect to hear back from your lender within a few business days.
When to Get a Mortgage Pre-Approval
You’ll want to time your pre-approval application appropriately. There is a chance, especially for first-time home buyers, that your lender could deny your first application. This doesn’t mean you can’t go forward with buying a house — it’s actually not uncommon for prospective home buyers to apply for a pre-approval more than once.
Often the first pre-approval can act as a preliminary check of your finances. If your first pre-approval is denied, your lender will tell you what areas they’d like to see improved, such as your income or credit score. You can use this denial as a sort of checklist to complete before you apply again.
This can take a few months, or even up to a year depending on the state of your finances. But if you space out your pre-approvals in this way, you won’t notice any difference in your credit score. Your pre-approval will appear on your credit history, but it won’t affect it very much, if at all. The only time you could see a change in your score is if you’re reapplying for pre-approval frequently without a massive change in your finances.
Ways to Optimize Your Finances for Pre-Approval
If you’re looking to optimize your finances for pre-approval, either before you start your application or after your first denial, there are a few common areas you can target:
- Audit your credit history: Auditing your credit history is not only a great way to help you understand where your credit score stands, but also can help you find errors and inconsistencies that may cause your score to be lower than it should be. Disputing these errors is a quick and easy way to raise your credit score.
- Calculate your debt-to-income ratio: This is an important step in understanding not only your net worth, but the amount of money you can afford to spend on a monthly mortgage without increasing your debt. Applying for a mortgage that overshoots your debt-to-income ratio may make you a higher risk borrower, which means you may be more likely to get turned down.
- Be able to show consistent income: Consistency is key when applying for nearly every type of loan, especially long-term loans like mortgages. Being able to show consistent earnings — a good rule of thumb here is two years — increases your trustworthiness as a borrower, as your lender has proof that you will be able to reliably make your payments. If you earn most of your income through sales, commissions, or hourly wage, you may need to provide further income verification over a longer period.
The pre-approval process can feel like a lengthy one, especially when you’re eager to buy a house. However, it truly is worth the effort to know that you have the financial support you need. After the pre-approval process, you’ll know your exact purchasing budget, what your monthly mortgage will look like, and how much time you’ll have to put in an offer. Knowing all of this information beforehand can help you make educated, confident choices when the time comes to buy the house you’ve been looking for.
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