The mortgage application process can be both a difficult and a confusing process, but it can also be an incredibly rewarding one. Consulting with a lender and receiving pre-approval for a mortgage loan is the first big step towards becoming a homeowner.
What is Pre-Approval?
To obtain pre-approval for a mortgage, borrowers must undergo a period of close scrutiny from a lender. The lender evaluates the borrower’s financial situation to determine how much they can borrow, what loan programs they might qualify for, and the appropriate interest rate offerings. During this process, lenders consider factors such as credit score, employment history, place of residence, monthly expenses, and income history. Documents like pay stubs, W-2 forms, bank statements, and credit reports are just some of the items that lenders require for pre-approval. Borrowers will also have to fill out a loan application before they can receive pre-approval.
Why Get a Mortgage Pre-Approval?
Mortgage pre-approvals help create a loan package that is best suited to you and your needs. After receiving a pre-approval letter (PAL), you can get a better sense of what loan options are available to you. In addition, you can prepare your finances for purchasing a new home. Your PAL will detail purchase pricing and interest rates, information helpful to you when assessing your budget constraints and loan options. This will make the home purchasing process far less stressful for you – as it should be. Having a mortgage pre-approval signals to real-estate agents and home sellers that you are both a reliable and an attractive buyer.
Depending on the lender, the mortgage pre-approval process may take about 2 to 4 weeks to complete, so be sure to start the mortgage pre-approval process 4 to 5 months before beginning your search for a new home. PALs are typically valid for 45-90 days.
If unable to obtain pre-approval for a mortgage, you can still apply for a mortgage and weigh your options. Get a second opinion and approach other lenders for pre-approval. If your credit score is an issue, do what you can to boost it, as increasing your credit score can provide you with better interest rates and loan terms. You may also want to consider increasing your down payment in order to qualify for a better loan.
Learn more about mortgage pre-approvals and other aspects of the mortgage application process.