Everything you need to know about Mortgage Preapproval

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Everything you need to know about Mortgage Preapproval

While buying a home, having a clear idea about how much you can spend on it is very helpful. It filters out the homes that are not in your budget. That’s why preapprovals are an essential part of any property buying process.

But what is a Mortgage Preapproval exactly? How to get Mortgage Preapproval for your Home? Let’s find out.

What is mortgage Preapproval?

Preapproval is a letter from your Lender that states the maximum amount they are willing to lend you & at what interest. The Preapproval is proof that your Lender is ready to lend you the mentioned sum, considering your current financial situation & the price of your property.

Before giving you a Preapproval letter, the Lender will investigate your financial situation in-depth. After analyzing your financial profile, the Lender will analyze your financial profile, income, debt, financial statement & investment account. Once your Lender analyzes this factor, they determine whether you are eligible for a mortgage & if yes, what will the maximum amount & the rate of interest be?

How can You get Preapproval for a Mortgage?

Before giving you a preapproval, your Lender must verify certain financial information to obtain loans. So you need to follow the following steps to avail Preapproval for a mortgage quickly:

1. Choose your Lender

This is obviously the first step. There are numerous lenders available out there. But you want to select the one that offers the lowest interest. So the best option is to identify multiple lenders & go through the preapproval process.

Once you have Preapproval from multiple lenders, it will become super easy for you to select the most affordable one.

2. Gather & Submit documents

This is the most crucial part of getting Preapproval. Here is the list of some income, debt & asset documents that you will have to submit for Preapproval:

  • Pay stubs from at least the past 30 days
  • Last 2 years’ W-2 (Wage and Tax Report)
  • Proof of any other income sources (if any)
  • Detailed Account statements with checking, CDs and retirement savings of at least the last two months
  • Loan document (if you have any existing loan)
  • Letters explaining any new loans you’ve received recently
  • Court records if you’re recently divorced
  • Court records if you dealt with bankruptcy or foreclosure
  • Contact info for your landlords if the Lender wants to verify rent payment
  • Personal ID to verify your citizenship

3. Credit Check

Before your Lender gives you Preapproval, they will have to check your Credit Report. This Credit Check is vital for lenders as they will decide the lending amount & the rate of interest based on your Credit Report. The less credit you have utilized, the more amount you are eligible to get & vice-versa. The Credit Bureau offers you a free copy of your Credit Report annually.

The ideal credit score for standard Mortgage loans is around 620. But the higher your credit score is, the lower the interest rate you will get.

4. Final Preapproval

Once your Lender is done assessing your financial status via various means, it’s time for them to determine whether you will get a mortgage & if yes, what amount & what rate of interest. If you meet all the criteria fixed by the Lender, they will release a final approval.

5. When should you start looking for a Mortgage Approval?

People often start looking for a mortgage after selecting a home. But this is a bad idea. We strongly recommend you go for Mortgage preapproval before you start searching or finalize a home. The reason is, Mortgage Preapproval is a complex process that will take a lot of time.

So the moment you buy a home, it’s time to start looking for Mortgage Approval. This will save you a lot of time & effort.

6. How soon can you get Mortgage preapproval?

There is no predetermined period for the Mortgage Preapproval. Depending on the Lender you choose, the time varies from 1 day to 1 week. But if there is a need for income verification, the Mortgage Preapproval can take more time.

Finally, it all comes down to how well-structured your paperwork is & how good your finances are.

What is the validity of a Mortgage Preapproval?

The most common validity period of Mortgage Preapproval is 90 days. But some lenders have a lower validity period, between 30 to 60 days. Once your Mortgage Preapproval expires, you can get it renewed quickly by asking your Lender.

It will take just a day or two as all your Lender has to check is there is no major change in your financial situation. But there is a catch! Rechecking your credit score will push it down by a few points.

7. What to do if you do not get Preapproval?

There can be multiple reasons why you might not get a Mortgage preapproval. In such a case, get in touch with your Lender to know the exact issue. If there is some error in your Credit score, you can address that error & apply again.

If your Credit score is poor, the only option is to improve it. You must pay off your debts regularly, reduce your debt ratio & raise your income. You can also get in touch with some flexible lenders who have a bit less stringent lending criteria.

FAQs 

1. How long does a Mortgage Preapproval letter?

Ans. Depending on your financial status, it can take anything between 1 Day to 1 week. 

2. Can I avail of Preapproval from multiple lenders?

Ans. Yes, you can. And it is advisable to avail of Preapproval from multiple lenders to compare their interest rates. The only issue is you will have to go through the preapproval process multiple times.

3. What is the validity of Mortgage Preapproval?

Ans. The validity of Mortgage Preapproval is 90 days in most cases. Sometimes it’s 30 to 60 days, depending on the Lender.

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