If you’re not having luck in the housing market right now, this article can steer you in the right direction. Sometimes buyers focus too much on the wrong things when they should make sure their finances are in order first.
Keep reading below to learn more about how to get pre-approved for a mortgage.
What Sellers Want
Most sellers want buyers to have a pre-approval letter before getting into negotiations over the price. So if you’re going around to open houses without getting approved first, you are putting yourself at a disadvantage. Make sure you are putting your best foot forward with sellers by getting a lender to write you a letter of pre-approval.
All buyers will need to show documents of their income, credit, assets, employment, and other related documents to get pre-approved for a mortgage. Now that you know what you need in order to get a lender to pre-approve you, let’s go over the difference between pre-approval and pre-qualification.
Pre-qualification and Pre-approval
A pre-qualification for a mortgage is a helpful estimate of someone’s budget for a home. But it’s better to get a pre-approval because it shows that a lender has done a credit check on a potential buyer and has gone through their financial documents. The lender will usually approve of a loan amount that lasts 60 to 90 days.
What You Need For Pre-approval
1. Verify Your Income
You can do this by getting a W-2 form from your employer, or by showing payment receipts from the last two years. If you have any additional income from bonuses or alimony, that will be helpful as well.
2. Verify Your Assets
The prospective buyer will need bank statements and any investment statements to show they can afford the down payment and closing costs. The down payment is a percentage of the total selling price, and it can vary based on the loan type.
Private mortgage insurance (PMI) is usually required with loans or the prospective buyer can also pay a mortgage insurance premium. Pre-approval is also based on a FICO credit score (620 or higher), debt-to-income ratio, and other variables depending on the type of loan.
It is also a good idea to know your credit score.
Separate Yourself
The housing market can be very competitive, so it’s important you take the right steps to get the seller’s attention. Make sure you work closely with a lender to get pre-approved and give yourself the best chance of securing a new home.
