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When To Get A Mortgage Pre-Approval
It is a good idea to get https://americashpaydayloan.com/title-loans-vt/ a mortgage pre-approval right before you start shopping for homes. These letters are typically valid for 60 to 90 days from the time they are issued. Homebuyers should apply before they want to tour properties and submit offers. Some recommend getting pre-approved anywhere from six months to a year before starting the homebuying process. The reason is that a pre-approval letter can give you a better idea of your potential loan terms. The farther in advance you know this information, the more time you have to improve your finances. That being said, you could opt for a pre-qualification ahead of time and use that as a guide before you ultimately submit a pre-approval application.
What Factors Affect Mortgage Pre-Approval?
Several factors can impact your application when getting pre-approved. It is important to review the information lenders want to make sure you are in good financial standing. Here are a few factors that affect mortgage pre-approval:
Income and Employment: You need to be able to prove that you have a stable income and employment history. Lenders want to verify your salary and see one to two years of W-2 forms. They may also request bank statements and contact information for your employer.
Debt-to-Income (DTI) Ratio: This ratio shows your debts in relation to your regular income. Debts include any outstanding medical bills, car loans, student loans, or other lines of credit. Most lenders want to check that you have a DTI at or below 43 percent before approving a mortgage. Your DTI will also impact your interest rate.
Credit History: Lenders require a hard credit check to verify the number of credit lines you have open and to review your payment history. They want to see a history of making payments on time and verify how much credit you are currently using. The exact credit history requirements will vary based on your lender and loan type, but this will often impact the required down payment.
Loan-to-Value (LTV) Ratio: The LTV is essentially the mortgage amount in relation to the property value. While you may not know the exact purchase price, lenders will typically ask how much you can submit as a down payment to determine the LTV. The LTV will determine whether you are required to pay private mortgage insurance (PMI).
The pre-approval process will require you to find a potential lender and submit the necessary financial information. The following steps will guide you through the process:
1. Supply Documentation
The first step in the pre-approval process is filling out an application with your lender. They want to verify all of your financial details before approving a loan amount. To do this, you will need to supply quite a few documents, including:
2. Agree To A Credit Check
Applicants will also need to supply a social security number and agree to a credit check. It is a good idea to review your credit history and score before submitting your application. This will give you a better idea of any potential areas for improvement. A hard credit check will impact your credit history, so buyers typically want to avoid applying more than once.
3. Wait For Pre-Approval
Once you submit all of the supporting documents necessary for your application, the pre-approval process is out of your hands. You will need to wait for the lender’s final decision, unless any problems come up. At that point, the lenders will issue you with a copy of the official pre-approval letter so you can move forward with the home-buying process.