Skip To Content

The 3 Steps to a Mortgage Preapproval

For many, entering the world of house hunting can be overwhelming. Before setting your sights on a home, it’s important to get preapproved for a mortgage. That said, what is a mortgage preapproval? How is it done? Smart Move Real Estate shares the three essential steps in qualifying for a mortgage preapproval.

What is a Mortgage Prequalification?

At its most basic, a mortgage preapproval does two things:

  1. A preapproval gives an estimate of the loan amount you’re likely to receive from a lender, helping you house hunt. 
  2. It demonstrates that you are a serious homebuyer to sellers. 

A prequalification is a letter from a lender stating that you are likely to be approved when applying for a mortgage. Mortgage preapprovals show sellers you’re a qualified buyer. They also give you an estimate of your loan size. A mortgage preapproval, however, does not guarantee financing from a lender. It only demonstrates that you are likely to receive it. 

Mortgage Prequalification vs Preapproval?

Though mortgage terminology and the information required differ between lenders, these are the typical differences between the two. 

Prequalifications

What sets prequalifications apart from preapprovals is the amount of information assessed by the lender. Prequalifications only consist of a discussion with your lender where you will describe some basic financial information. Here are some of the things a lender will ask about:

  • Annual income
  • Employment history
  • Value tied to assets
  • Credit History

Preapprovals

While mortgage prequalifications are self-reported, the preapproval process requires you to provide documents proving this information to your lender. This makes a preapproval letter a stronger signal of your interest in a property and that you will receive financing. 

In the next section, we’ll discuss what information you’ll need to present to your lender.

How Do I Get Preapproved For a Mortgage?

Mortgage preapprovals provide a more accurate loan estimate and look better to a seller. However, before you get an estimate, you’ll need to gather some information. 

1. Have Your Credit Score Assessed

It’s important to know that credit inquiries by lenders partially affect your credit score. However, the credit dip is only temporary. Furthermore, subsequent lender inquiries within a certain time frame (typically 45 days) will not affect your score. 

With that said, it helps to understand your credit situation before sitting down with a lender. Knowing your current score gives you an idea of your loan eligibility and what type of loan to expect. Here is a list of free credit reporting sites.

2. Collect Your Financial Information

During a preapproval, a loan officer will estimate the size of the loan you qualify for. To this, they will primarily focus on your debt-to-income ratio. This means you will need to provide quite a bit of information regarding your personal wealth.

  • Bank statements
    • Typically sixty days worth.
  • Pay stubs
    • For the past thirty days.
  • W-2 tax returns 
    • From the past two years.
  • Schedule K-1 (Form 1065) for self-employed borrowers
  • Income tax returns
  • Asset account statements 
    • Retirement savings, stocks, bonds, mutual funds, etc.
  • Driver’s license or U.S. passport
  • Divorce papers 
    • To use child support or alimony as qualifying income.
  • Gift letter 
    • If you’re a financial gift to fund your down payment.

With these documents collected, you’re one step closer to your mortgage preapproval!

3. Find The Right Time To Apply

A mortgage preapproval letter is only valid within a certain window of time. These time frames vary based on lenders, though they often range from 60-90 days. Having a valid preapproval letter is often required to make an offer. However, don’t worry if you can’t decide in time. You can always refile by sending your lender your updated information.

You’re Ready To House Hunt!

Congratulations, you are now preapproved for your mortgage! Now, your real estate agent can guide you through finding a house and making an offer. Our realtors work with you each step of the way, ensuring you understand each part of the process.  To speak with an agent today, send us a message or call us at 225-448-2850. We look forward to hearing from you!

Trackback from your site.

Leave a Reply

*
*

<—————————————————————————>