How to Get Pre-Approved For A Home Loan

A home loan (mortgage) is a loan issued by a lender to purchase residential property. The acquired object becomes the borrower’s property but is used as collateral until the debt is fully repaid.

A mortgage has one significant advantage. You do not need to save for decades to buy an apartment or a house. You can get a large loan and start living in your own home right away. In this case, a person is exempted from the cost of renting housing and already pays for their own property.

The disadvantage of a mortgage is a large overpayment. Lenders offer high APR and long repayment periods. However, a home loan is becoming the choice of many today.

Obtaining pre-approval is an important (but not mandatory) step in the home-buying process. Pre-calculation gives you a clearer picture of your buying power. It helps create a realistic budget that you can stick to in the long run.

Once the mortgage is approved, you can pre-fix an interest rate for a specific period. Read more about pre-approval for a home loan below.

What Is Pre-Approval?

Mortgage pre-approval is an absentee decision by a loan officer or scoring program to provide a specified amount of funds.

Such a decision is made based on an analysis of a potential borrower’s creditworthiness level. Having a mortgage approval can show the seller of the apartment/house that you are serious and have a good chance of getting a home loan.

Pay attention that although mortgage approval is an essential step in buying a home, it does not guarantee that you will receive a home loan. Many borrowers who apply for a mortgage online are denied without explanation.

This scenario may be caused by insufficient income, incomplete or incorrect filling of documents, as well as problems with the legal registration of the property.

How to Get Pre-Approved For Home Loan

You need to follow a few simple steps to learn how to get pre approved for a home loan:

• Firstly, you need to choose a reliable lender;
• Secondly, prepare all the necessary mortgage documents;
• Thirdly, fill in a mortgage approval application.

Please note that mortgage approval is usually obtained by potential borrowers who provide correct information about themselves to the lender. Therefore, make sure that you have all the documents showing your level of income, reliability, and current credit load.

Such information will allow the lender to assess your creditworthiness and make a faster decision on the approval/denial of a mortgage.

Choose The Best Lender

To get a mortgage in favorable conditions, try to choose among large financial institutions such as a bank. The most trustworthy are lenders that have been on the market for a long time. Turning to them, you can be sure there will be no unpleasant surprises when obtaining a home loan.

In addition to large banks, credit organizations deal exclusively with mortgage agreements. This is also a good option. The conclusion of a mortgage agreement takes a minimum of time. In addition, a person gets the opportunity to choose the optimal lending program.

The main features of a reliable lender:

• The lender has several mortgage programs at its disposal. The lender’s partners are reliable developers and realtors;
• Availability of a housing base for sale;
• Positive feedback from bank customers.

Don’t be fooled by the bank’s tempting low APR. The small initial percentage is usually burdened with a list of additional expenses.

Therefore, it is vital to learn about the total cost of a mortgage. The price may be affected by:

• Interest rate. Low APR can be obtained by borrowers with a good reputation;
• Additional mortgage fees;
• Insurance that acts as collateral. Along with a low rate, the bank usually offers the services of certain insurance companies that can impose title insurance. But this is not beneficial for the client at all.

Some financial institutions organize various mortgage promotions to attract new customers. It is often appropriate to use them. But before agreeing to any conditions, carefully study the proposal. Such promotions may hide additional commissions or restrictions that do not allow you to repay the home loan ahead of schedule.

Prepare Needed Documents

Collecting the documents is an essential step in applying for pre-approval for a home loan. If you skip this step, you will most likely not be able to get mortgage approval from the lender. Therefore, it is highly recommended to treat the collection of documents as responsibly as possible.

The main documents required to obtain approval for a home loan are the following:

• Proof of income. Potential borrowers must be prepared to provide the lender with W-2 wage statements and tax returns for the last two years. The mortgage lender must understand how much income the applicant has and whether they will be able to make monthly payments;
• Proof of assets. The client’s bank account must have sufficient funds for the required down payment, closing costs, and cash reserves;
• Credit score confirmation. Those with a FICO credit score of 620 or higher can apply for mortgage approval. However, proof of a good credit score must be provided;
• Employment verification. The applicant must be ready to provide the lender with certificates from the place of current work;
• Other documents. The lender may also ask the borrower to provide a Social Security number, driver’s license, credit report, etc.

Before you start collecting mortgage documents, you need to check whether you meet the requirements of the selected financial company.

There are general requirements that are mandatory for all potential borrowers. There are also additional requirements. They depend mainly on the chosen mortgage program and your credit score.

Fill in Pre-Approval Application

The process of filling out a home loan pre-approval application is quite simple. You can complete it online without even leaving your home. It is just necessary to have a computer, laptop, smartphone, or any other device with an Internet connection. Find a mortgage approval application on the website of a trustworthy lending company and fill it out.

As a rule, it is required to provide brief information about yourself and the required documents to get preapproved. Brief information about the borrower includes the name and surname, residential address, e-mail address, telephone number, etc.

Documents required include proof of identity, proof of income, proof of assets, proof of a good credit score, Social Security number, etc.

After filling out the mortgage application and attaching all the necessary documents, it is recommended to read all the entered data carefully. Errors or inaccuracies are often found. If you don’t fix them before submitting your mortgage debt application to the lender, you may not get approved even if you have an excellent credit score.

Why To Get Pre-Approved For A Home Loan

Many people do not understand why it’s a good idea to get preapproved for a home loan and refuse such an opportunity. But getting approved is quite beneficial.

Preliminary approval of a mortgage application does not mean that the loan money will definitely be provided. It means that the request has been received by the lender and considered valid.

A preapproved application also indicates that it is being submitted for further review. You should understand that today lenders carefully check the information provided by the applicant and collect additional information, primarily related to the client’s credit history.

Mortgage approval letters usually have a validity period of 30-90 days.

When to Get Pre-Approved For Home Loan

A preliminary decision on the approval of the mortgage request, the home loan amount, and the interest rate is usually obtained within one working week after the application is submitted. But when is the best time to apply?

In fact, there are no restrictions. You can do this at any convenient time. But according to experts, the best time to get approved for a home loan is a year before you make a purchase. The sooner you get preapproved, the more benefits you receive when buying a home.

Pre-Approval vs Pre-Qualification

Pay attention that potential borrowers often use the terms “pre-approval” and “pre-qualification” as synonyms. But in fact, it is important to distinguish these concepts. Pre-qualification is a small step for getting preapproved for mortgage debt.

Let’s say you call one of the reliable lenders and provide him with information about yourself as a potential borrower. You report the level of your monthly income, credit rating, etc. In turn, the lender indicates the approved loan amount that you can get.

The main difference between pre-qualification and pre-approval is that pre-qualification is usually based on a verbal conversation about the applicant’s financial condition. Pre-approval, in contrast, is based on financial documentation supporting the applicant’s responses. Therefore, it is considered more reliable.

Although pre-qualification is less authoritative, it is a good way to get an initial idea of whether you are financially eligible for a mortgage.

Pros And Cons Of Pre-Approval

Loan preapproved basically means that the lending company has agreed to grant you a home loan if you meet predetermined criteria. Lenders analyze your credit history, monthly income, and expenses, and evaluate whether you can repay the borrowed debt.

However, approved mortgage loans do not imply a guaranteed receipt of money, since all required documents are still subject to verification. Although the procedure is almost the same as a regular loan application, pre-approval for a home loan speeds it up considerably.

There are several advantages and disadvantages of a preapproved home loan. Read more about them in the table below.