mortgage pre-approval Archives

What Documents Do You Need for a Mortgage Pre-Approval?

January 23, 2018 by Chris Hamler

One of the most common questions asked about getting a mortgage pre-approval is the type of documents that a borrower needs to prepare. Here’s a checklist.

First things first: Do you really need a mortgage pre-approval?

The answer is no. When buying a home with financing, you are not strictly required to get pre-approved. However, when competition is tight and you’re buying in a market where you’d most likely encounter a rival for a property of interest, getting pre-approved is a big advantage than having none. Sellers generally see those who have pre-approval to be more serious buyers.

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Not only that. A pre-approval helps gauge your financial capacity to afford a home. It’s a good way to know how much budget you should prepare for the purchase.

So how do you get pre-approved?

It’s a simple, no-sweat step. The lender simply wants to verify your income and asset information as well as your employment history. Most likely, you already have the documents needed for the purpose.

Yet, if you are self-employed or have an unconventional source of income, the timeframe for preparation might take longer.

Here, we’ve gathered the most common documents that lenders require for a mortgage pre-approval, whatever type of borrower you are.

Income and Employment Documents

Copies of your W2 forms along with your most recent pay stubs. This is for employed individuals who generally get their income from one source. If you have income from bonuses or overtime pay, the lender may require you to include your end-of-year payroll document.
For those who are getting income from real estate, you need to present documents of earnings, as well as of the current market value of the property
For self-employed individuals, independent contractors, and freelancers, you would need a year-to-date profit and loss statements covering the most recent two years as well as the Form 1099s used when you filed your taxes and reported your income

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Asset Documents

Copies of all the bank accounts you are using to qualify for the loan. These account statements should show statements for the most recent 60 days, including blank pages.
Two months worth of statements from your IRAs, investments, and CDs accounts, including the last quarterly statement from your 401k

Debt Documents

A detailed list of your debt obligations. That includes student loans, auto loans, credit cards, personal loans, etc. Your debt information will be used by the lender to determine your debt-to-income ratio. That is, how much of your monthly income goes to paying off these debts.
Your real estate debt should be specified here. If your home is currently under a mortgage, you need to include information about the house’s loan number, its monthly payment amount, the current loan balance, the name and the address of the lender. You may also have to disclose a page of your home’s insurance policy.

What other records or documents do I need?

If you are currently renting, you need to show proof of your rental payments for the previous year (12 months) and include the contact information for your landlord.
Divorce documents may also be required including records for alimony payments
Lenders are strict about where you get the money to fund your down payment. If part of it is gifted, you need to show substantial proof of the down payment gifts that shows those who gave them don’t expect to be paid back.

Typically, a mortgage pre-approval can be obtained within 5 to 7 days depending on how fast you forward the necessary documents, the type of mortgage you are applying for, and the tools that the lenders use to verify your information.

Here Are the Common Reasons Why a Mortgage Pre-Approval Is Denied

January 4, 2018 by Chris Hamler

A mortgage pre-approval is one of the most important steps in acquiring a mortgage. How do you ensure that your pre-approval gets through?

If you’re thinking of finally buying your first home, chances are you’ve scoured the internet for those “first-time homebuyer tips.” And maybe perhaps you’ve already encountered the proverbial advice to get pre-approved for a mortgage.

So now you find yourself preparing all the documents needed, checking your credit score, while comparing lenders and interest rates. You’re on the right track. In fact, getting a mortgage pre-approval is one of the most important steps in getting a home loan. It allows you to get a range of how much you will be able to afford with your current finances and saves you time shopping for a home.

Getting turned down on your application can be heartbreaking. It’s one of the biggest woes for most mortgage shoppers. So while you’re still on the early stage of preparing for your own pre-approval, it might help to learn from others’ mistakes.

Here are some of the most common reasons why home buyers are unable to qualify for a mortgage.

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Low Credit Score

A borrower’s credit score is the first thing that lenders look at when assessing their creditworthiness. Depending on the loan program, minimum credit requirements could vary but most conventional mortgage programs prefer borrowers with scores 620 and above.

Furthermore, the credit score will not only dictate whether you get pre-approved or not. It also determines your interest rate and how much mortgage insurance will be slapped into your loan.

Rates are sensitive to market pressures and can change frequently. Locking on a rate if projections point to a climbing trajectory is also one of the most tricky – and maybe costly – mortgage decisions.

Carrying a low credit can definitely reject your application. That is why it’s of primary importance that before you apply for a mortgage, you must check your record for any errors or inconsistencies.

Report disputes to the concerned parties.

Lack of Employment History

One of the primary requirements of qualifying for a mortgage is being able to establish your ability to repay the loan. That means you need to have a solid income source. This is often the reason why it’s hard for most self-employed and contractual job workers to qualify for one.

If you have no job or there are gaps in your employment history, your lender will hesitate lending you the money. And it makes sense. After all, where will you get the funds to repay what you owe?

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Not Enough Money

If you’re going to apply for a mortgage, you need to prepare enough money for a down payment.

One of the perpetuating misconceptions about qualifying for a mortgage is having to pay at least 20 percent of the home’s purchase price in down payment. That is no longer necessarily true today, though it still has its perks.

Paying for the conventional 20 percent down payment requirement gives you access to lower interest rates, allows you build equity faster, and saves you from paying mortgage insurance which could amount to 0.5 to 1 percent of the overall loan amount.

Still, having enough money saved for a down payment is not always a safe spot. Most conventional financing programs examine your financial reserves to ensure that you have enough money to back you up in case some emergency situation comes up. Some banks require their borrowers to have 6 months worth of mortgage payments stashed in their savings accounts, though not always a requirement.

If your current financial situation does not allow you to afford the hefty down payment, however, you can consider qualifying for a low down payment mortgage program.

High DTI Ratio

As part of the process of establishing your ability-to-repay, the lender looks into your DTI (debt-to-income) ratio. This figure tells the lender how much of your monthly income goes to paying your debt and if you still have some wiggle room left to pay for a home loan.

Having a high DTI ratio is ground for mortgage denial. Typically, lenders allow DTI ratio from 38 percent to 43 percent, though some mortgage programs allow higher limits.

Getting denied for a mortgage is not the end of the road. If you find yourself in this situation, the best course of action is to learn from your mistakes and use them to prepare better in the future.

Here’s Why You Should Think About Getting a Mortgage Pre-approval

December 19, 2017 by JustinM

Buying a home and applying for a mortgage comes with different processes that require a good amount of effort and preparation.

Preparing for these processes are critical. If you don’t put effort into preparing, it could compromise how smoothly these processes would go.

Since buying a home is probably one of the biggest investment you’ll embark on, it’s smart to really take time to prepare everything you need.

One of the home buying processes you need to prepare for is the mortgage pre-approval.

Today, a lot of homebuyers usually decide to forgo this step but there are good reasons why you should consider getting one.

What is a mortgage pre-approval?

A lot of homebuyers confuse pre-approval from pre-qualification. It’s important to point out that one is different than the other.

For one, getting pre-qualification process means that lenders will look at your financial information and give you an estimate of how much mortgage you will qualify.

A mortgage pre-approval, on the other hand, entails a lender checking and verifying your financial information and credit-worthiness.

After that, lenders will give you the exact amount of how much mortgage you will qualify if you get approved of one.

To see the importance of getting a mortgage pre-approval, here are some of the reasons why it can help your homebuying journey.

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You will know what you can afford

If you decide to get a pre-approval, you will know how much mortgage you’re going to take. Therefore, you will have a definite budget in mind when it comes to buying a home.

Knowing your budget will help narrow down your choices to what you can afford. With that in mind, you’ll possibly be able to save time during house hunting.

You’ll get ahead of the competition

Here’s the fun part. Sellers are more likely to lean towards homebuyers who are pre-approved for a mortgage over those who aren’t. That’s because sellers will get the impression that you’re a serious buyer.

In a competitive housing market, you would want to get ahead to increase your chances of buying the house you really want.

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You will have time to improve on being credit-worthy

A mortgage pre-approval is like your window to what lenders will look into when you have your mortgage approved.

By considering pre-approval, they can point out some areas where you can work on and improve your credit-worthiness.

While there’s no guarantee that you’ll get approved, a mortgage pre-approval is your chance to make sure that it really happens.

In the end, preparing for home buying and mortgage application does not entirely promise a stress-free journey. However, you can definitely do something to reduce the hurdles you might face along the way.

With a mortgage pre-approval, you’ll have better chances of reducing those hurdles. In achieving that, you’ll definitely become one step closer to becoming a homeowner.

Before you know it, you’ll be sitting in your new living room and appreciating the home you successfully bought for your own.