What is a mortgage preapproval
What is a mortgage preapproval?
A mortgage preapproval is a process where the lender will evaluate your credit rating, and financial information, like income, debts, and assets to verify your eligibility for final loan approval.
When you apply for a mortgage preapproval, the lender will need to access your credit report using a soft pull or hard pull credit inquiry.
If your credit rating meets the minimum requirements for approval, the lender will then need to verify your income and asset documents to determine your maximum eligible purchase price that you will be preapproved for.
After the preapproval has been authorized, applicants will receive a verified mortgage pre-approval letter that informs real estate agents and home sellers that the applicant is pre-approved to purchase a home.
Getting preapproved for a mortgage is the most important step in the home buying process.
- Sellers expect Buyers to have a Preapproval
- Buying a home without a preapproval will be challenging
- A preapproval helps you budget for affordability
- Getting a preapproval allows you to compare loan offers
Rates 1% lower than most banks at Equifund Mortgage® | See real pre-approved loan offers.
Get Pre-Approved Online. See Loan Offers in 3 minutes.
Why mortgage preapprovals are the most important step in the home buying process?
When home buyers fail to shop and compare multiple mortgage preapproved loan offers, they will most likely loose out on additional savings in closing cost and receive a higher interest rate on their loan. The majority of home buyers will stay with the mortgage lender that issued the mortgage pre-approval letter.
Most often, home buyers will use the real estate agents preferred mortgage lender compared to shopping multiple mortgage lenders preapproval loan offers. Unfortunately, this can lead to paying more in closing cost and a higher interest rate on the new mortgage loan.
Why you should get a mortgage pre-approval?
Unless you are paying for a home in cash, most real estate agents and home sellers will not consider offers to purchase a home without a mortgage preapproval. Mortgage preapprovals give you the ability to estimate your closing cost, down payment requirements and estimated monthly payments.
- Home sellers and real estate agents will take your offer to purchase seriously: Unless you are pre-approved the home seller and real estate agents will not have any confirmation that you are able to obtain financing to purchase the home.
- Faster loan closings: The lender has already reviewed your credit rating, income and assets documentation. Therefore, the lender will only need to collect an appraisal, sales contract and title paper work.
- Saves time searching for properties: By knowing the maximum sales price you are pre-approved to purchase, you will be able to narrow your search of homes for sale in that price range.
- Establishing a budget: When you get a mortgage preapproval the lender will send you initial loan disclosures that show you your estimated mortgage payment that includes property taxes and insurance
How to use a mortgage preapproval calculator to verify eligibility?
There is a preapproval mortgage calculator that you can use to verify your ability to get preapproved for a mortgage. To use the mortgage calculator you will just need to answer some simple questions about your credit score, monthly income, total payments on credit cards and other debts.
When you answer the questions in the mortgage calculator you will be shown the lowest rate and fee loan options you qualify for in under 3 minutes.
Rates 1% lower than most banks at Equifund Mortgage® | See real pre-approved loan offers.
Get Pre-Approved Online. See Loan Offers in 3 minutes.
What are the requirements for mortgage pre-approvals?
The requirements for a mortgage preapproval depend on the loan program that best matches the applicants borrowing profile. Most loan programs will require applicants to verify the prior 2 years of income, future income earnings, and credit history and rating. Provided below is a list of requirements for mortgage pre-approvals.
- Minimum credit score of 580
- Minimum down payment of 3-3.5%
- 0 30-day late mortgage or rent payments in last 12 months
- No foreclosure in last 4 years
- No bankruptcy chapter 7 in last 2 years
- Chapter 13 bankruptcy requires 12 payments made on time
- Debt-to-income ratio of less than 50%
What is the information required to get a mortgage preapproval?
In order to issue a mortgage pre-approval, the lender will review all of your income and asset information to verify eligibility prior to issuing a pre-approval.
In addition, the pre-approval process includes the evaluation of your monthly debt obligations compared to your gross monthly income.
- 2 Years employment history
- Total monthly payments on credit cards
- Total monthly payments on auto loans
- Total monthly payments on student loans
- Total monthly payments on personal loans
- Estimated cost of home insurance
- Estimated cost of property taxes
- Average balances in bank checking and savings account
- Social Security Number
7 Steps to get a preapproval for a home loan:
The process of getting a mortgage preapproval is relatively simple. Using a Digital Mortgage Marketplace is a simple tool that provides online instant loan pre-approvals while comparing multiple lender loan offers. A Digital Mortgage Marketplace, will provide you with a multi-lender, real-time, loan shopping and loan preapproval experience.
Applicants that use these services, generally capture the lowest interest rates and fee mortgages while obtaining a verified mortgage preapproval in one simple step.
- Pre-qualify to Compare Offers: In under 3 minutes compare multiple lenders loan offers
- Online Mortgage Application: A pre-approval mortgage calculator to predetermine eligibility
- Identify Best Loan: Select the lowest rate and fee prequalified loan option
- Upload Documents: Upload your income and asset documents listed on the mortgage app
- Soft pull credit inquiry: Does not hurt your credit rating
- Talk with Loan Originator: Resolve any questions or concerns
- PreApproval Letter: Verify receipt of your preapproval letter
Rates 1% lower than most banks at Equifund Mortgage® | See real pre-approved loan offers.
Get Pre-Approved Online. See Loan Offers in 3 minutes.
How to prepare for getting a mortgage preapproval?
1. Check your credit report and payment history
To increase your chances of mortgage approval and receive a favorable interest rate, it's important to review your credit report for any inaccuracies that could harm your credit score. Your credit history holds significant weight in this process. Lenders will want to verify that you have a minimum credit score of 580.
To increase your ability to get a lower interest rate on your home loan, identify any derogatory information that is reported in error. If you identify any inaccurate information on your credit report, notify your loan officer.
The loan officer will be able to provide assistance and correcting your credit report which may increase your credit score. The increased credit score will improve your chances of getting a lower interest rate and lower mortgage payment on your home loan.
2. Pick the right mortgage preapproval loan program
To choose the right mortgage program for your financial situation, focus on factors like the down payment requirement, interest rate, and closing costs. Keep in mind that there are multiple programs available, each with its own features and benefits.
EquiFund Mortgage provides a simple online mortgage preapproval platform that identifies the lowest mortgage rates from the Nation's best lenders and issues both prequalification and mortgage pre-approval letters.
3. Know the factors lenders use to preapprove home buyers
To get preapproved for a mortgage, lenders will assess your credit score, employment history, down payment amount, and debt-to-income ratio (DTI) among other factors.
WHAT HOME BUYERS SHOULD KNOW:
Pay everything on time:
- To maintain a good credit score, it is important to ensure that you make your credit card, loan, and other debt payments on time.
Keep your credit balances low:
- It's recommended to limit your credit card balances to 30% or below of your available credit limit.
Down payment and closing costs funds:
- Before applying for a mortgage, make sure you have enough funds saved up to cover the down payment and closing costs.
4. Gather your documents
When you apply for a mortgage preapproval, make sure to have documents such as tax returns, W-2 forms, bank statements, and pay stubs ready to provide to the lender.
Required Documents for Mortgage Pre Approval:
- If employed, 1 Months Most Recent Pay-Stubs
- If applicable, Social Security Awards Letter
- If applicable, Pension Awards Letter
- Last 2 years IRS Tax Returns or W2's
- If applicable, Divorce Decree showing Child Support
- 2 Months most recent bank statements to verify down payment funds.
- Driver's License and Social Security Card for both borrowers
5. Compare lender's mortgage preapprovals
Comparing lenders in one of the most important steps to follow. The financial impact from not capturing the lowest rate and fee mortgage loan can be substantial.
To find the best mortgage preapproval option, compare multiple lender's pre-approval offers since they may offer different rates and terms. EquiFund provides an instant online mortgage marketplace that will generate loan preapprovals and prequalification's while identifying the lowest rate and fee mortgage loan in the marketplace.
Rates 1% lower than most banks at Equifund Mortgage® | See real pre-approved loan offers.
Get Pre-Approved Online. See Loan Offers in 3 minutes.
6. Fill out a mortgage application
After selecting a lender and mortgage program, you have to complete a loan application and submit all the required documents. The lender will examine your application and grant you a preapproval letter if it gets approved.
How long does mortgage pre approval take?
You can get a same-day mortgage preapproval using an online mortgage preapproval service. Most lenders require 2-7 days to provide a mortgage preapproval.
Can I get a mortgage preapproval without a credit check?
No, a mortgage preapproval without a credit check is a mortgage prequalification. The mortgage prequalification does not offer you or the sellers any additional assurance that you will be approved for a mortgage.
If you do not want to get pre-approved without hurting your credit, then you can request a preapproval using a soft pull credit inquiry.
How can I increase the mortgage preapproval amount?
There are several methods that you can use to increase the mortgage preapproval amount. First, consider paying down your monthly debt obligations on credit cards. Second, any installment loan when paid down to where you only have 10 payments or less remaining will not be counted in your DTI ratios. Therefore, you will be eligible to increase your loan amount.
Rates 1% lower than most banks at Equifund Mortgage® | See real pre-approved loan offers.
Get Pre-Approved Online. See Loan Offers in 3 minutes.
The difference between mortgage preapproval and prequalification
Mortgage preapproval and prequalification are not the same thing. With prequalification, a lender asks for basic information about your income, debt, and assets to provide a rough estimate of what you might be able to afford. A Mortgage Preapproval, on the other hand, requires a lender to review your credit history, income, and assets in more detail and provide a specific loan amount that you are preapproved for.
Getting prequalified for a mortgage
The first step in how to get a mortgage to purchase a home is to obtain prequalification for a mortgage. To get preapproved for a mortgage you must verbally disclose important information such as your income, debts, and assets to the lender. The lender will use this information to offer an approximation of the amount you may be eligible to borrow for a mortgage.
Getting preapproved for a mortgage
In order to obtain a mortgage preapproval for a home loan, you will have to furnish the lender with a complete set of financial documents will include your income documents, bank statements, and employment proof of employment in addition to the lender pulling the credit report. Based on these details, the lender will assess the exact amount of loan that you are eligible for.
For the majority of applicants, the list of documents that the lender will request will be the same. While each applicant is unique, the documents are standardized for most applicants.
Mortgage preapproval vs. final mortgage loan approval
Please be aware that a mortgage preapproval is not equivalent to a final loan approval. Based upon all the information you provided the mortgage lender, the pre-approval is subject to final underwriting approval. This means that any material change from the time you applied for a mortgage preapproval will require a new updated pre-approval, or change the terms of loan pre-approval.
While it is very rare that full verified mortgage preapprovals loan submissions get denied, on rare occasions it can happen. The final loan approval will be subject to a more comprehensive assessment of your financial status, as well as an evaluation of the property you plan to purchase.
Rates 1% lower than most banks at Equifund Mortgage® | See real pre-approved loan offers.
Get Pre-Approved Online. See Loan Offers in 3 minutes.
What if my mortgage preapproval is denied by a lender?
In case you are denied for a mortgage preapproval, there are ways to increase your likelihood of getting approved later on.
Reduce your DTI ratio:
- Lowering your debt-to-income ratio by either paying down debt or increasing your income can increase your chances of being approved for a mortgage.
Improve your credit score:
- Improve your credit score by paying off your debts, ensuring timely payments, and correcting any mistakes on your credit report.
Try getting preapproved with different loan program.
- You may want to explore other options for getting approved for a mortgage, such as FHA loans or VA loans. These types of loans could have less strict requirements compared to traditional mortgages.
Rates 1% lower than most banks at Equifund Mortgage® | See real pre-approved loan offers.
Get Pre-Approved Online. See Loan Offers in 3 minutes.
Today's Mortgage Rates
You can expect daily fluctuations in mortgage rates, which are influenced by various factors such as the lender and your credit score. Check the current mortgage rates to get an idea of what to expect.
Mortgage Resources
You can find numerous resources to guide you through the mortgage process, such as online mortgage calculators, mortgage brokers, and financial advisors. It is advisable to seek professional assistance to make informed decisions.
