If you find yourself sitting at a strange hallway, waiting for a stranger in a suit to size you up and decide if you’re worthy as your palms sweat and your breath gets just a little bit harder to push out, then you might be waiting for your appointment for your mortgage pre-approval. You are one step closer to owning your own home, however this one is a doozy.
Let’s talk mortgage pre-approval step-by-step.
Mortgage Pre-Qualification Versus Pre-Approval
You probably already have a pre-qualification letter saying that you can probably get a house in a particular price range, so why isn’t this enough? A whole lot of homebuyers find this part of the process confusing, and frankly, it can be.
Your pre-qualification was probably done over the phone or in your first meeting with your lender. They asked you a bunch of questions about your income, your job and maybe even dragged a”soft” credit report to get some idea about your debts.
Based on this information, they gave you the details on the sorts of programs you are eligible for and how much you can expect in buying electricity. You probably got a letter that you could present your Realtor to help guide the buying procedure. The difference between the pre-qualification and the pre-approval is simple: a pre-qualification is based largely in your word. If you provide the lender erroneous information, they’ll give you a pre-qualification letter that’s not perfect.
A pre-approval, on the other hand, takes a harder look at your background, work history and demands a full credit report and FICO score to ensure that you can, in fact, pay back a notice.
Your next meetup using the wonderful banker is going to be to send documents, provide consent to pull a full credit report and, if you’ve already found one, give them the information about the home you’ve put under contract (in some areas your Realtor can do this last bit for you).
Documentation you’re going to be asked to bring will include pay stubs, bank statements and tax returns, along with other information that may be necessary to verify your income source or sources.
Self-employed men and women, for example, are sometimes needed to prepare profit and loss statements (or just pony up more tax returns). If you have assets such as a 401(k) or just a CD, you’ll want to bring the details on these, too.
Measure Three: The Loan Estimate Form
You’re going to get a copy of something called the Loan Estimate Form, probably at the same meeting where your lender pulls that full credit report and takes all your papers away. This form explains exactly how much they anticipate you’ll need to bring to closure, along with itemized estimated fees to plan for at closing.
If you are buying your own loan, accumulate these and compare them side by side before you make your final choice.
But don’t spend too much time crunching the numbers. Similar to your contract (and the National Association of Realtors) says, “Time is of the Essence.”
Measure Four: Acceptance
As soon as you’ve had a few minutes to review the paperwork and you’ve made your final pass through the numbers, all that’s left is to call the lender you’ve selected and let them know you need that pre-approval letter sent to a Realtor.
Understand that a pre-approval is not a guarantee that you are going to get the money that you need to shut. Several things can go wrong along the way through underwriting, including, but not Limited to:
— Unverifiable income (this is often because of issues with overtime)
— A change for your credit score.
— An increase in your debt to income ratio
— An undocumented change in employment
— Assets that are unverifiable
The best plan is be totally honest with your lender when you get your pre-approval so that you don’t get a last minute call informing you that your loan has been denied (this actually happens, so pay everything on time and don’t take out new credit lines or add to old ones until you’ve obtained the keys in your hand).
When is the Best Time to Make an Offer?
Ideally, you need to have a pre-approval letter in hand before you so much as set foot into the first house you’re considering for purchase. After all, the seller isn’t likely to think you’re all that serious without one, nor will they be keen to want to negotiate under these circumstances.
Help your banker help you get the very best deal in the house of your dreams, save everyone a lot of headaches and get that pre-approval first. Knowing how much your closing costs are likely to be will also help your Realtor compose your contract accordingly if they ought to need to get wrapped in to your mortgage.