Mortgage Pre-Approval Overview
What Is A Mortgage Pre-Approval?
Pre-approval for a mortgage means that a lender has established how much money you can borrow, which loan programs you might qualify for, and what interest rate you will be able to pay. The assessment takes into account your credit score, income, and work history.
A lender will usually provide a written statement stating these details. This can be used to assure sellers that they'll approve you for a loan once you accept their offer. Pre-approval letters can be valid for between 60 and 90 days.
Is There A Pre-Approval Guarantee On A Loan?
No. No. A lender may ask for additional income verification and assets, along with other conditions, to extend a loan. If your financial situation changes, pre-approval letters can be modified or cancelled. Pre-approval letters are not an offer to lend, a promise to make a loan or a guarantee about rates or terms. It does not constitute a credit application. Pre-approval letters are not a guarantee that a seller will accept your offer on a house.
Why Should You Get Pre-Approved?
Pre-approval is important for many reasons. Pre-approval will give you an accurate estimate of the cost of your home. This will help you narrow down your search and make sure that you only view houses that fit your budget. Pre-approval letters can also prove to sellers and real estate agents that you are a trustworthy buyer who can move quickly when you find the house you desire to purchase. Although some sellers require pre-approval letters, it does not guarantee that a seller will accept your offer. Finally, pre-approval letters can help you stand out in a highly competitive real estate market. Your offer might not be considered as serious if you don't have a preapproval letter.
What Details Are Required For The Pre-Approval Process?
A lender will usually ask for basic information about you and your finances. The lender will need information about your co-borrower if you have one. A lender will request your Social Security number, permission to pull your required credit reports (and those of your co-borrowers, if applicable). If your information and information from your credit report meet the lender's requirements, the lender will write a preliminary decision stating that you are eligible for a loan amount. This is subject to the conditions outlined in your pre-approval letters. Each lender will have its criteria and processes to determine whether it will grant a preapproval letter.
What If You Can't Get Pre-Approved?
While not everyone will be pre-approved for a mortgage loan, there are some things you can do to prepare yourself for homeownership's financial responsibility.
Improve your credit score. Credit scores are affected by your payment history, outstanding credit, length of credit history, credit inquiries made recently, credit types used, and other factors. A score of 720 or higher will generally get you the best mortgage rates.
Corrections to your credit report can help you improve your credit score. The lender will review your credit report to identify any red flags such as missed or late payments or debts that are not paid on time. There are still ways to get pre-approved for mortgages even if your credit score is poor.
Reduce your overall debt and increase your debt-to-income ratio. A debt-to-income ratio below 36 percent is preferred. The maximum allowed ratio is 43 percent. Use our debt-to-income calculator to determine your debt-to-income ratio.
To qualify for a bigger loan, increase your down payment. Find out more about down payment.
