If you’re planning to buy a home soon, shopping around to find the perfect place is the fun part. But before you begin contacting real estate agents to assist with your search, there’s an important step to take. You’ll need to get pre-approved for a mortgage to set a home shopping budget. Read on to learn more about what it means to be pre-approved, how it differs from pre-qualification and how to get started when you’re ready to buy your first or next home.
Is Mortgage Pre Approval the Same as Pre Qualification?
The terms mortgage pre-approval and pre-qualification are often used interchangeably. However, they aren’t quite the same, as one holds more weight than the other.
When you reach out to the lender to get pre-qualified, they will review the financial and income data you share to determine if you could be a good fit for a loan and provide you with potential loan amounts, interest rates and monthly payments. However, they won’t do a hard credit check – a soft pull may be done, though.
A pre-approval is a bit more involved, though. You’ll need to provide financial information and income documentation. The lender will also check your credit to ensure they account for all the outstanding debt you have. Doing so allows the lender to generate more concrete loan offers.
Why Should You Get Your Mortgage Pre-Approved?
Getting pre-approved for a mortgage lets you know how much home you can afford. It also tells you the maximum amount the lender is willing to let you borrow so you can shop with confidence.
Another significant advantage of getting pre-approved is the buyer power it provides. Sellers will take you more seriously because they know you’re serious about purchasing a home and not just casually browsing to see what’s available. Furthermore, you’ll have the ability to make stronger offers than if you weren’t pre-approved.
How Far in Advance Should You Get a Mortgage Pre-Approved?
Ideally, you want to get pre-approved for a mortgage prior to shopping for a home. Otherwise, you risk missing out on a great opportunity if you need to make an offer but don’t have the pre-approval letter from the lender handy.
Keep in mind that while some lenders can get you pre-approved in as little as one business day, others take a little longer. So, the earlier you get the ball rolling, the better. And once you’re pre-approved, the letter will be valid between 30 and 90 days, depending on the lender.
What Factors Affect If You Get Pre-Approved for a Mortgage?
When determining if you’re a good fit for a mortgage, lenders will usually consider these factors:
- Monthly Income: Do you earn enough to comfortably make mortgage payments?
- Employment: Have you been employed in the same industry for at least two years? (Some lenders will accept one year of steady employment)?
- Credit score: Is your middle credit score at or above the acceptable figure for the loan program you’re considering?
- Debt-to-income (DTI) ratio: Is the total amount of your minimum monthly debt payments at or below 40 percent of your gross income?
This list may not be all-inclusive, as some lenders may look at other factors. Inquire before applying for pre-approval to learn more about their specific guidelines or overlays that could make it more challenging to qualify for a home loan.
5 Steps on How to Get Pre-Approved for a Mortgage
If you’re ready to get pre-approved for a mortgage, follow these steps to make the pre-approval process more seamless.
1. Prepare All Necessary Documents
It helps to gather all the personal information and financial documentation the lender will need before submitting the application to avoid processing delays. This includes:
- A copy of your driver’s license or state-issued identification card
- Your Social Security number
- Your employer’s name, address and contact information for your supervisor
- Proof of assets, including bank statements and investment account statements
- Proof of employment, including most recent tax returns, pay stubs and W-2 statements
2. Assess Your Credit Score and your Finances
Get copies of your credit reports from the three major credit bureaus – Experian, TransUnion and Equifax. Review the contents and file disputes to have any inaccuracies rectified before applying. Otherwise, information that could be dragging your credit score down will be present for the lender to see.
Also, take a look at your credit scores from the credit reporting agencies. Lenders will use the middle number on your loan application. So, if your three scores are 695, 705 and 681, 695 is what will be used.
3. Determine Your Monthly Payment
Review your spending plan to determine how much mortgage payment you can afford. The lender may approve you for a home loan with a much higher number, but only you know what makes sense for your finances. And it’s vital that you stick with this figure that includes interest, mortgage insurance, property taxes, insurance and any other escrow payments to protect your financial health.
4. Time Your Application
Another important consideration to keep in mind is that several mortgage inquiries in a set period – usually 45 days, will only impact your credit score once. So, don’t be afraid to shop around within that timeframe to find the best deal. But only do so when you’re serious about buying a home.
5. Choose the Right Lender
Now that you’ve done all the legwork to prepare for the mortgage process, it’s time to get pre-approved. Most lenders allow you to complete the process online from the comfort of your home without taking up too much of your time.
Zero Mortgage is one of the top full-service online mortgage lenders in the nation worth considering if you’re searching for a reputable option. It offers a smooth online lending experience, from pre-approval to funding, and you can view potential loan offers and rates without a credit check to determine if you want to move forward with getting pre-approved.
Here’s an overview of Zero mortgage’s streamlined process:
- Fill out the online application. It’s straightforward and shouldn’t take more than 15 minutes out of your busy schedule.
- View your loan offers. If there’s a potential fit, you can explore loan terms and select the one with the rate that is most ideal for your financial situation.
- Consult with a loan advisor. Before moving forward with the lending process, Zero Mortgage encourages prospective customers to work directly with experienced loan advisors and consult its library of resources to ensure they’re making the most suitable decision.
Plus, borrowers enjoy zero application fees, processing, underwriting, or lender fees. This means you get the best of both worlds – an exceptional level of service during the application process and the ability to keep more of your hard-earned money in your pocket.
Join over 12,000 happy homeowners who’ve used Zero Mortgage to help meet their purchase or refinance needs. Navigate to the website today to find out in minutes if a home loan with a low rate from Zero Mortgage could work for your financial situation.