Buying a home is probably one of life’s biggest purchases, and many need a loan to make this goal possible. Having a mortgage pre-approval will give one advantage while searching for the right property. This is because preapproval shows that sellers that a lender is ready to lend the preapproved borrower money.
The requirements to have a home loan pre-approved include providing comprehensive financial details about one’s income and debt, and then going through a credit check. Once approved, the borrower will have a solid estimate that proves that he or she is a serious contender for a mortgage.
What Is Preapproval?
A mortgage preapproval is a statement of how much money a lender is willing to lend to a borrower looking to finance their home purchase. One must complete an official mortgage application to be preapproved. This process is based on the borrower’s financial situation, which includes one’s savings, investment accounts, and income, in addition to financial obligations. A lender also often performs a hard credit inquiry before granting a preapproval. Some lenders charge an application fee for preapproval, amounting to several hundred dollars.
By going through this process, a lender can make an informed estimate about what type of property the borrower can afford. The mortgage preapproval document issued to the borrower proves that the lender is prepared to move forward with the mortgage, provided, the property meets certain qualifications. It is also required that the borrower’s financial situation does not undergo a big change in the succeeding weeks. Receiving this document puts the borrower at an advantage when dealing with a seller because they are one step closer to getting a mortgage.
Borrowers may be asked to produce the following documents to the lender:
- Pay stubs
- Federal income tax returns and W-2s
- Latest bank statements
- Investment account statements
Borrowers will need their W-2 wage statements from the past two years, in addition to their newest pay stubs, proof of any additional income like alimony or bonuses, and their tax returns in the last two years. In addition, they need to produce their bank statements and investment account statements to prove that they have cash reserves and funds to pay for the down payment.
Apart from providing financial documents, borrowers will also be asked to undergo a credit check. Expect lenders to perform a hard inquiry that can impact one’s credit score.
For a conventional loan, lenders often require a FICO score of 620 or higher. The lowest interest rates are typically given to those with credit scores of 760 or higher. The FHA guidelines allow approved borrowers with scores upwards of 580 to make a down payment of 3.5%. Borrowers with lowe scores will have to make a larger down payment. In these cases, lenders often suggest ways to the borrower on how to improve their score.
How Long Does It Take To Get Preapproved?
It may take up to a few days to get a decision on one’s preapproval application, depending on his or her financial situation. The document, however, could take a couple of weeks before it arrives at one’s doorstep. In some cases, borrowers with good finances and credit can receive an offer within one business day.
Make The Best Decision
Looking to get preapproved? Call (949) 284-2700 to receive expert advice from a Loanbox Mortgage consultant or visit Loanbox Mortgage for a free quote.