Health & Fitness
How to get pre-approved for a new home loan
Those who have finally decided that they are ready to buy a home are often daunted by various questions! A lot of work is to be done before they actually start looking around for a property. Home-buyers who are entering the market for the first time may find the whole process very complicated. However, with a little planning, it can be a smooth sail. Experts say that before looking for a home, buyers should get pre-approved for a new home loan.
A mortgage preapproval does not guarantee a property purchase, however, it will give the buyers a fair idea of how much of a loan they can afford. Also, it is documented proof to property sellers that the buyers do qualify for financing. In fact, many times it is seen that realtors do not even discuss properties with interested buyers, unless they are preapproved for a mortgage.
Pre-approval and pre-qualification
Experts suggest that first-time homebuyers should start meeting mortgage lenders about 3-4 months before they start looking for a property. If they apply for a home loan early, they will have ample time to work out things such as credit scores and documentation. Many lenders still offer an initial prequalification rather than a preapproval.
Three points that lead to a mortgage approval are- the buyer's credit, income and down payment. For prequalification, mortgage lenders will check the credit, and ask for income and down payment amounts. Buyers with fair credit may be given a prequalification letter and an estimate of the new home loan amount they qualify for.
During preapproval, an automated underwriting system studies the buyer's financial information and verifies their credit and debt-to-income ratio. A preapproval letter is then issued to buyers who qualify.
Requirements for pre-approval
- The requirements may vary from one mortgage lender to another and other circumstances, however; the following are needed:
- 30-days of pay stubs
- Federal tax returns for the 2 previous years
- Quarterly bank statements or 60-day statements of all asset accounts (checking, savings or other investment accounts)
- W2s of last 2 years
Apart from the paperwork, the preapproval session with lenders should also include a vast discussion about the down payment and new home mortgage loan options.
Any good mortgage lender asks the prospective borrowers a lot of questions in the preapproval stage about their budget and cash reserves. This helps lenders suggest appropriate guidance on new home loans. Mortgage loan providers advise borrowers on the pros and cons of various loan programs and enlighten them on various scenarios based on what is affordable to them in terms of their investment and monthly payments.
To speed-up the mortgage loan closing process, borrowers need to be completely upfront and honest with the lenders. Right from filing an application to having all of the papers in order, being organized definitely makes everything less complicated.
Amanda Parkar has an experience in writing on financial lending. She has been writing on various topics such as, home mortgage loans and back to work program.
