Steps to Obtain a Mortgage Pre-Approval

Mortgage Pre-Qualification vs. Pre-Approval: There's a Difference

Before meeting with a realtor to start house hunting, it’s wise to first consult with a loan officer to ensure you qualify for the type of mortgage you want.

Once you have an idea of the best mortgage option for you, the next step is to prepare for the mortgage process. Scheduling an appointment with a loan officer to prequalify for a mortgage is a crucial first step. Coming to this meeting prepared can help the process go smoothly and allow you to focus on finding your new home.

Lenders require a lot of documentation to approve a mortgage, and bringing these documents upfront can save you hassle later. Knowing what your loan officer needs and preparing in advance will streamline your path to closing.

Here’s a step-by-step guide to getting a mortgage pre-approval to get ahead in your home-buying journey.

Let’s Talk Money

First, check your savings to determine how much you can put towards a down payment. Remember, you shouldn’t drain your savings account completely, as you’ll have other expenses, like moving costs and home-related purchases (e.g., shelving, paint, small repairs). These costs add up quickly, so set aside some funds for these unplanned expenses.

How Much Are You Comfortable Spending?

Know your comfortable financing amount and the highest monthly payment you can manage before meeting with your loan officer. If the loan officer approves you for more than you expected, don’t feel obligated to borrow the maximum amount if you’re not comfortable with the higher payment.

Remember, mortgage payments include principal, interest, mortgage insurance, homeowner’s insurance, and property taxes. The mortgage term (the number of years until the loan is paid off) also affects your monthly payment. Terms typically range from 10 to 30 years, with 30-year terms being the most popular. Shorter terms generally have higher payments but lower interest rates and total interest paid.

Don’t Forget About Closing Costs

In addition to your down payment, be prepared for closing costs, which typically add a few thousand dollars to your mortgage. These include fees for the title company, appraiser, lender, underwriting company, and taxes, averaging about 4-5% of the purchase price. You’ll also need prepaid funds for your escrow account, covering property taxes and homeowner’s insurance.

You can ask the seller to pay for some or all of your closing costs, but this must be agreed upon in the sales contract.

Make an Appointment

Don’t be nervous about meeting with a loan officer—they want to close your mortgage because they earn money from it. They’re working for you, so find someone who values your business. If you feel your bank has high fees or interest rates, shop around for better options. It could save you money.

What to Bring to the Appointment

To make the application process smooth, bring the following items:

  • Paystubs: If you’re a W2 employee or receive commissions, bring two months’ worth of paystubs.
  • W2s: Provide W2s from the last two years, along with hire and termination dates if applicable.
  • Bank statements: Provide your last two bank statements to prove you have the funds for closing costs and down payment. Be ready to explain any non-payroll deposits.
  • Tax returns: Bring your last two years’ tax returns, especially if you’re self-employed. Include any schedules that accompany your basic return.
  • Income documentation: If you’re using retirement, disability, or social security income to qualify, bring statements and bank statements showing deposits.
  • Photo ID: A driver’s license or passport will suffice.

Once you discuss your financial situation, the loan officer will pull your credit report and hopefully issue a prequalification letter on the spot. This letter specifies the amount you are approved to borrow and includes contact information for the bank or broker.

Providing a mortgage prequalification letter to your realtor shows you’re a serious buyer, and many realtors won’t show houses without one. It also strengthens your offer in a bidding war.

With a preapproval in hand before you start house hunting, you’ll be well-prepared and ahead of the game.

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