Buying your dream house is what every person wishes for. But only a few are able to buy it and achieve this dream. Thus, getting your mortgage loan approved and sanctioned is very important. Any credit company or bank would not credit you the loan until and unless they are sure of your paying capacity. Thus, mortgage pre-approval is very important. It is important so as ensure that there will be no debts in future. In addition to this, the lenders do not have to use foreclosure home methods on the consumer.
There are many questions related to mortgage pre-approval, including what it means. It is important to how it works. This is what we will focus in this article.
What Does It Mean To Be Pre-Approved?
If you are pre-approved for a mortgage loans means that the lender approves of you for a mortgage loan. This loan includes the loan amount and the loan term. The lender does so after checking your credit score, employment, and income details. The lender has enough information about the borrower to know whether the borrower will be able to meet the mortgage loan guidelines or not.
The borrower must complete the credit application, and get their credit score checked before even considering to apply for the mortgage loan. If your credit score is too low, you may not even qualify for a mortgage loan. In addition to this, it is important that you keep your credit as high as you can. This will result in lower interest rates for your mortgage. After checking your credit score, the lenders verify the income and tax returns to get the mortgage pre-approval. To sanction the funds, the banks first check your bank statement for the down payments. This is to ensure that you are capable of paying back the fund in due time.
Only down payment capacity is not enough. The lenders need to make sure that your debt-income ratio meets their guidelines of mortgage loans. All your monthly debts are added up and compared to your monthly income to ensure your paying capacity. Therefore, one should avoid debt in the future. Also based on the debt-income ratio the final amount of mortgage is finalized. And pre-approval letter including the amount approved for a mortgage is sent to you. Many people confuse pre-approved mortgage with the pre-qualified mortgage.
Pre-Approved Mortgage v/s Pre-Qualified Mortgage
There is very little validation between the two of them. The pre-approved mortgage is when the lender knows that you have qualified for the loan of a certain amount after going through your details. In a pre-qualified mortgage, the lender thinks that you can qualify for the loan with the little information that is given to him for verification. When your mortgage gets pre-approved your agent, your seller and seller’s agent know that you have got the loan. But pre-qualification really does not mean anything in the mortgage credit market. The lender gives you a proper application and other documents after pre-approval of the mortgage. This completes your first step of buying your dream house. You are done with half of the battle.
Mortgage Pre-Approval Process
To get your mortgage application approved there is a whole procedure that a borrower needs to follow. The borrower has to submit all the documents with proofs in order to provide information to the lender for verification. The documents generally include identification documents, income documents, tax returns and documents with bank details. These ensure the lender of your paying capacity and helps them finalize the amount of credit that can be sanctioned for the mortgage.
You will be asked to provide the documentation showing your source of income with details of the past paychecks. Also, you need to be an employer for about 2 years in order to assure the lender for stable income and employment. If you have any other part-time job or you are self-employed you need to bring that into notice as well, it helps to quicken the pre-approval process for your mortgage. Along with it, you need to show your documents relating to tax returns to prove your consistency.
Lenders make sure that you have a good credit score. This is because it helps the lender in finalizing the final amount that is sanctioned. Credit score and debt income ratio are very important when it comes to the amount of mortgage. The borrower must meet the minimum credit score. In addition to this, he should not have a late payment in his account. Also, there should be no excessive debt associated with the borrower.
720+ = Excellent Credit
680-719 = Good Credit
620-679 = Fair Credit
580-619 = Poor Credit
579 or under = Bad Credit
These details are very important for a lender before approving a mortgage. One has to make sure that the lender is satisfied with the information. This is possible if he has all the necessary information regarding the loan is with him. This is because it is the lender who would be sanctioning your mortgage loan and deciding on your mortgage loan amount.
The Bottom Line
Thus, we talked about mortgage pre-approval in detail. We talked about it at length. We even talked about its contrasting features in comparison to mortgage pre-qualification. The process of mortgage pre-approval was also discussed at length.
Finally, we can conclude that it is important for a person to take care of his credit score as it is the most important thing when applying for a mortgage loan. In addition to this, one should be ready with all the other information necessary for applying for a mortgage loan. This is to make sure that the process would be hassle free. It is important to take care of these issues in the beginning to lead a happy and stress free life afterwards. Thus, one would be able to happily live after in their home if one follows these important points.