Imagine standing on your dream home's front porch, where a soft breeze carries the excitement of making new memories.
To transform this vision into reality, you must first secure a mortgage for your home. What if we told you there's a faster, easier way to get approved for a mortgage, One that'll have you in your dream home sooner?
A mortgage pre-approval can get you there, help you stand out against the competition, and impress the seller.
Home Purchase: Pre-approval Basics
A mortgage pre-approval isn't just an upmarket term; it's a proven way to demonstrate to sellers that you're a serious buyer. A pre-approval requires your lender to review your financial documents, credit history, and other critical factors to determine your creditworthiness.
Home Purchase Pre-approval vs. Pre-qualification
A mortgage pre-qualification provides a quick estimate based on self-reported, surface-level finances. Alternatively, mortgage pre-approval offers a more thorough process, increasing your ability to stand out with sellers.
Documents Needed for Pre-approval
You'll need several documents for the pre-approval process. We've broken them down by category for you here.
Employment
- Paystubs: 30 days
- Tax returns: two years
- Bank statements: three months
- Employment verification: past two years
- Self-employment business records, if applicable
- Other income sources
Assets and Debts
- Investment statements: two to three months
- Loan and credit card statements: past 60 days
- Other owned real estate properties
Credit History
- Credit reports and scores
- Rental history and landlord contact information
Personal Identification Documents
- Driver's license or other acceptable form of ID
- Social Security card
- Letters of recent residencies or tenures
Streamlining Mortgage Approval
Many lenders can return a mortgage pre-approval within a few days, compared to an average of 45-60 days for mortgage applications without pre-approval.
However, you can hasten the process more by doing the following.
- Have all your documents ready
- Check your credit report before approaching the lender and rectify any errors
- Pay down debt balances
- Avoid taking on new debt, such as new credit cards or loans
- Maintain a stable employment history
Avoid These Common Home Purchase Mistakes
Like any journey, the path to home buying has pitfalls. Thankfully, you can avoid them. So, let's go over the most common missteps to ensure your experience is smooth and steady.
1. Insufficient Credit History
It takes time to build credit, and most mortgage lenders like to see at least 24 months of credit history, including activities such as:
- Paying bills on time
- Using credit cards responsibly
- A low credit utilization rate — using 30% or less of your approved credit line
2. High Debt-to-Income Ratio
Your debt-to-income ratio (DTI) is how much debt you have versus your amount of income. Aim for a maximum of 36% for the best mortgage interest rates. The lower your DTI, the better your chances of snagging better interest rates.
3. Unstable Employment
Most lenders prefer to see a stable employment history, which means few or no job changes over the past two to three years. If you plan to change jobs, it's best to wait until after your home purchase, as this can affect pre-approval and full mortgage approval.
4. Neglecting Your Credit Score
Monitor your credit report for errors. If you find any, rectify them immediately. And if you see areas for improvement, like paying down debt, address them promptly.
5. Failing to Budget for Additional Costs
Owning a home comes with extra costs beyond your mortgage, like taxes, insurance, maintenance, repairs, and sometimes homeowner association fees. Budget accordingly to avoid overextending your finances.
6. Skipping Mortgage Pre-approval
Waiting for full mortgage approval can set you up for disappointment if your credit history or something else needs tweaking. Alternatively, pre-approval gives you more confidence during the home-buying process. It'll also show you areas of concern before full mortgage approval.
7. Impulsive Large Purchases or a New Credit Line
Large purchases such as a new car and applying for a new line of credit impact your credit history and score, increasing your DTI. Instead, delay large purchases and apply for new credit after your home purchase.
In Summary
Mortgage pre-approval benefits you by helping you stand out as a serious buyer and giving you financial confidence during the process. Avoiding common pitfalls along the way is also essential to smooth your home purchase from beginning to end while keeping your finances in check.
Are you ready to get started? Apply online today for a mortgage pre-approval and start looking for your dream home tomorrow.
Sources
https://www.extracobanks.com/loans/home-loans
https://www.bankrate.com/mortgages/documents-for-preapproval/
https://www.creditstrong.com/how-much-credit-history-is-needed-to-buy-a-house/
https://www.investopedia.com/terms/d/dti.asp
https://www.realtor.com/advice/finance/how-long-does-it-take-to-get-a-mortgage/
