Having a mortgage preapproval in hand gives you the best opportunity to have your offer accepted by a home seller. So, it’s time to get one now if you have been checking out homes but have not received a preapproval letter from a lender.
Understanding the Difference Between Pre-qualification and Preapproval
Pre-qualification: This typically is an early process where your lender runs your credit report and uses the income and assets you self-report to see if you are eligible for the mortgage. A pre-qualification can be instant or can take one day or two. It’s important to have a pre-qualification letter because the sellers will know you’re serious about home buying. See why below.
To learn if you can qualify, apply here.
Preapproval: When you get preapproved for a mortgage, the lender receives most of the important documents (credit report, income, assets) they need to accurately determine what loan program you qualify for and how much. Sellers will have a comfort level that you will be able to close your mortgage promptly if you give them a preapproval certificate with your offer
What will you need to have ready to be reviewed by a lender, and why?
Understanding The Actual Mortgage Application (Uniform Residential Loan Application)
Now that you understand the meaning of pre-qualification and preapprovals, and know what you will need to prove to the lender that you can afford a home, let’s go over the actual mortgage application, also known as 1003. By learning about the 1003, you will understand what lenders ask for when applying for a mortgage, section by section.
There are 8 sections of information that you will need to complete when applying for a mortgage loan.
Section 1: Borrower Information
Section 2: Financial Information-Assets and Liabilities
Section 3: Financial Information-Real Estate
Section 4: Loan and Property Information
Section 6: Acknowledgement and Agreements
For this section, you will be asked for your personal information, such as your first and last name, social security number, and date of birth. You will be asked if you are applying individually or with someone else. In this section, they also want to know your income sources and any previous address.
This section asks you to enter each account’s assets for bank accounts and any other liquid accounts. Any gifts will also be included here, and anything with a cash value is an asset.
In this section, you also include your liabilities which are any debts, leases, and credit cards you owe.
Here you would enter any property you currently own, and if you don’t own any real estate, you can make that selection here.
In this section, you are asked to enter the loan amount you are applying for and the purpose of the transaction. It can either be a purchase or refinance.
In this section, you answer no and yes questions such as, do you have any judgments against you?
This section is all the legal jargon about your obligations. This section is where you sign and date.
In this section, you are asked if you are or were in the military or your deceased spouse.
You are asked about your race, sex, and ethnicity in this section. Remember that you don’t have to provide this information if you don’t want to.
Should I get a preapproval ahead of time?
In most cases, it’s a good idea, especially if you want to get your offer the proper attention. One reason you don’t want to wait until the last minute to get preapproved is that looking for all the required documentation and dealing with the vendors simultaneously can be stressful. Start as early as possible so that you have time to react to any unforeseen issues.
How much time should I set aside to get my mortgage preapproved?
Once you have your documents handy, getting preapproved typically should take less than an hour. To get preapproved online, click here.
How long does a preapproval last?
Typically 60 days, but some dated documents may have to be updated.
Do preapprovals hurt credit scores?
Credit scores can drop a few points when the lender pulls your credit report, but without this type of “hard” credit pull, there is no way for you to get a true preapproval.
Does preapproval mean you are approved?
No, until your file is completely underwritten and all documents have been reviewed, including an appraisal in some cases, you are considered “approved waiting for conditions.” In other words, till the lender has signed off everything, you cannot close your mortgage.
For example, lenders will order an appraisal of the property to assess the property’s value. Another important factor lenders review is the title of the property. They will do a title search to ensure there are no claims or liens on the property you’re buying.
How to increase your chances of getting preapproved?
Keep your debt load to a minimum, pay your bills on time, save more than enough for your down payment, and monitor your credit score. Correct a mistake in your credit reports if you see an error. You can also make sure you show consistent income coming in. In the end, if you really need help, ask someone to cosign with you.
Who decides what type of loan preapproval I need?
You do, but having a true preapproval certificate will help your chances of getting your offer accepted.
How do I get notified if I have been preapproved?
Typically your loan officer will advise you and send you a certificate to use when making offers.
Where can I find down payment assistance?
Your loan officer is probably the best place to start.
What are Down payment Gifts?
Some programs allow “gift funds” to be given to you to be used towards your down payment or closing costs. Usually, these need to come from a family member.
Can I get a mortgage preapproval if I am self-employed?
Yes, usually, 2 years of personal and company tax returns are required along with a recent profit and loss statement.
Getting your mortgage preapproval certificate?
Contact Promise Home Loans and tell them you are looking to get preapproved for a mortgage. They will review your options, guide you to the best program that fits your needs and deliver a preapproval certificate you can use with your offer. They will also refer you to one of their Preferred Real Estate Agents in your area if you don’t have an Agent representing you yet.
Types of loan programs out there?
Conventional 30-year fixed-rate mortgage
The 30-year fixed-rate mortgage is a home loan with an interest rate that’s set for the entire 30-year term.
Conventional 15-year fixed-rate mortgage
The 15-year fixed-rate mortgage has an interest rate that remains the same over its 15-year term.
Adjustable-rate mortgage
An adjustable-rate mortgage is a home loan with an initial rate fixed for a specified period, then adjusted periodically. For example, a 5/1 ARM has an interest rate set for the first five years and then adjusts annually.
FHA mortgage
An FHA mortgage is a home loan insured by the Federal Housing Administration. FHA loans are backed by the government and designed to help borrowers of more modest means buy a home.
VA mortgage
VA loans are mortgages backed by the Department of Veterans Affairs and are available to military service members and veterans.
USDA mortgage
USDA home loans are mortgages backed or issued by the U.S. Department of Agriculture.
Jumbo mortgage
Jumbo home loans are mortgages above a certain dollar amount. Jumbo loan limits vary by county and are adjusted periodically
Can I get a preapproval if I already have a mortgage?
When getting preapproved, your current mortgage would be considered in the approval process based on whether you would pay off your existing mortgage (selling your current home) or keep it as a rental or second home.
The Bottom Line
Before you start your home-buying journey, getting preapproved before anything else is smart. Once you contact a Real Estate Agent, they will know you’re serious about finding a home, and both the Agent and Seller will know you can close on the purchase on time. Get pre approved online.
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