Getting preapproved for a mortgage gives you the option of negotiating for lower interest rates and getting a clear picture of the housing budget and monthly mortgage payments. We share how to get preapproved for a mortgage in this post.
What Is a Mortgage Preapproval?
A mortgage preapproval is a letter or statement showing how much funds a lender will allow you to borrow to purchase a home. It can be helpful at the time of approval, but it’s not required by law.
In fact, if you don’t have one and are denied for any reason—whether it’s because your credit score isn’t high enough or because there are too many other factors that come into play—you may not be able to get approved at all!
A mortgage application is considered incomplete unless an actual financial institution has issued you an actual “preapproval” letter and has confirmed with them that your income is sufficient for them to give out the amount of money necessary for buying into their program and paying back whatever loans they offer.
Related: How to Apply for a Mortgage
Difference Between Prequalification and Preapproval
The difference between prequalification and preapproval is that the latter involves a soft credit check, which is used to determine your eligibility for financing.
A lender will look at your income, debts, and assets to assess how much money you might qualify for in terms of a mortgage payment each month; some lenders also look at whether or not you have enough equity in your home to make it worth putting down as part of their evaluation process.
The next step is to apply for an appraisal so that they can calculate how much house value would be needed if you were actually going out and buying one yourself instead of renting an apartment or home that already exists somewhere else.
If all goes well—and this could take anywhere from two weeks up to six months depending on what type of lending products are being considered.
Preapproval indicates that additional documentation should be submitted before submitting an application; often times these documents include copies from IRS tax returns along with other financial statements such as recent pay stubs/W2 forms showing full-time employment history over the past few years.
Also, personal references who know both parties involved must confirm their identity as well – especially important when dealing with real estate transactions where liens may appear later due diligence requirements imposed upon developers prior approval process begins!
When to Get a Mortgage Preapproval
If you are planning to buy a house, get preapproval before you put down any money. This will ensure that your loan is approved and that the lender won’t disapprove your application when they see that you already have an approved mortgage on file with them.
If you’re planning to refinance or reduce the amount of debt in your current mortgage, getting preapproved is also crucial.
A new lender will want proof that there are no problems with your old loan and if they see it listed as paid off on the previous one, they’ll automatically be suspicious about why someone would want to do this again (and charge higher rates).
Your preapproval letter should explain how much equity remains in order for their approval-it’s better not to rely solely on income data because banks can use anything as part of their calculations!
How to Get Preapproved for a Mortgage
Find a mortgage lender with low rates and fees
The best way to find a mortgage lender is by researching their reputation. You can do this by looking at reviews online or asking friends or family for recommendations. If you’re still unsure, ask your real estate agent for advice about who they use and why they like them so much.
Another thing that you should look out for when choosing a lender is low rates and fees. This will save you money in the long run by reducing the amount of interest that accrues on your loan over time as well as limiting how much money goes towards closing costs (the last thing anyone wants.
Also Read: How to Find a Mortgage Lender
Present all financial and personal documents
If you’re applying for a mortgage, you’ll need to provide proof of your income. This can include:
- Your Social Security Number (SSN)
- A copy of your W-2 tax form from the past year, if applicable
- Pay stubs from the last 30 days or more that show: -The total earnings on which taxes were withheld for federal income tax purposes; and the amount paid for each day worked during that period
Ensure your credit report has a good credit score
You’ll need a good credit score to get the best mortgage. Your credit score is found in your FICO® Score, which is a three-digit number that shows how likely you are to repay debts. The higher your FICO® Score, the better chance you have of getting approved for a loan or mortgage from lenders.
To ensure your FICO® Score is as high as possible:
- Pay off all debts with new purchases such as cars and houses; don’t use any other type of payment methods such as payday loans or store cards (even if they have low-interest rates)
- Don’t make any late payments or miss payments at all when they come due – pay them on time. If possible, contact creditors directly before committing any late payments so they can work with you on solutions instead of sending threatening letters after several missed payments have gone unpaid
Have a low debt-to-income ratio
Your debt-to-income (DTI) ratio is the percentage of gross monthly income that goes into debt payments and loans. It’s one of the most important factors in determining whether or not you’re eligible for a mortgage.
Mortgage lenders prefer borrowers with a low debt-to-income ratio of 36% or lower, so if your DTI is high, it means you’ll need to start paying down most of your debts before being approved for financing.
How Long Does a Mortgage Preapproval Last?
A mortgage preapproval is the first step in getting a home loan approved. It can last up to 90 days, but some lenders authorize only 30-60 days of preapproval validity.
A lender may give a homebuyer an initial “no” on their application, but they’ll likely change their mind after reviewing your credit report and other information about you. If so, they’ll send another request for additional information or documents that will help them determine if they want to approve your loan application based on what’s in those documents (like income verification).
How Long Does It Take to Get Your Mortgage Preapproved?
It depends on the lender. Some lenders will process your application in one day, others take weeks or even months.
The exact time frame for processing varies by state and lender, but we recommend contacting your local credit union or bank beforehand so that you know how long they typically take before approving loans like yours.
Importance of Getting a Preapproved Mortgage
Getting a preapproval is the first step in getting your mortgage. It helps you save precious time, as it allows you to focus on finding the right house and avoiding any surprises.
A mortgage preapproval also makes sure that when it comes time for closing, everything goes smoothly because lenders know exactly what they’re doing and when they will be able to close on your home.
Preapprovals can also help reduce interest rates by 1-2% depending on who is providing them. This means more money coming into your pocket each month!
What to Do Once Your Mortgage Gets Preapproved
Now that you’ve gotten your mortgage preapproved, what do you do?
Well, the first step is to search for houses. And when I say “search,” I mean really hunting for houses. You need to start looking at homes within 60-90 days of getting a letter from your lender saying they’ll give you money in exchange for signing on the dotted line.
This means that if your homebuyer loan application has been approved by July 1st and doesn’t close until December 31st or sometime later, then it’s time to start looking!
Conclusion
If you’re ready to get preapproved for a mortgage and start your homebuying process, then it’s time to start talking to lenders. We know how important this step is, so we want to help make sure that you have all the information needed before taking any action.
That’s why we have a list of guidelines and tips on how to get preapproved for a mortgage.
