Tips from Your OCCU Home Loan Specialist - Mortgage Pre-Approvals
What do I need to do to get Pre-Approved for a Mortgage Loan?
Congratulations, you are now considering the purchase of a home. This can be a very exciting and scary experience. I hope the information within this newsletter will provide you with some insight into the process
I want to buy a home, but I don’t know where to start
Here a few questions to ask yourself:
How much house can I afford?
How much do I have saved for a down payment?
Can I afford my desired neighborhood?
Are home values increasing or decreasing in the neighborhood?
How long will my commute take?
Is the school district a fit for my family?
Is it within walking distance to amenities and activities?
Now that you have asked yourself these questions, it’s time to start on the next step, and get your financing in order.
Getting Pre-Approved
Unless it is your plan to buy a home with all cash, getting pre-approved by a lender will give you an official decision on your home buying budget. In order to get pre-approved, a lender will calculate your debt-to-income ratio and review and assets and your overall financial health. You will be asked to provide:
Income statements, like paystubs, W-2’s, 1099’s, rental income and tax returns
Assets, like bank statements and retirement accounts
Debts, including monthly expenses like student loans, credit cards and other mortgages
Last two years employment history
Current rent, child support payments, alimony payments
Records of bankruptcies and foreclosures
Last two years of housing history
After a mortgage officer has reviewed your financial documents, assets and credit reports, and it is decided that you meet the guidelines for a mortgage loan, you are now considered pre-approved. Once you’re pre-approved, you’ll receive a pre-approval letter. Not only does it officially let you know how much you can borrow, but it can come in handy when submitting an offer. A pre-approval letter shows a seller you’re serious about buying their home. This is especially important in a hot market, when you’re likely competing against other offers.
If you are not quite ready to apply yet, but you still want to have an idea of what you could be approved for is by using an online affordability calculator, this can give you a general idea based on very little information, and no credit inquiries are needed. I like the calculator on Redfin.com How Much House Can I Afford? - Home Affordability Calculator (redfin.com)
Remember, it is okay to shop around for the best rates and lowest fees. You are not beholden to the first company you have run your information. It is always a good idea to get at least three quotes, so you can compare rates and fees to ensure you are getting the best loan possible.
Keep in mind that your debt-to-income ratio will be examined again before closing. Taking on new debt can limit the total loan amount available to you during financing. Something else to consider is your employment stability. Your lender will call and verify employment right up until the closing of the loan, so changing your employment in the middle of the process can also affect your approval.
On the other hand, going through the pre-approval process can also benefit you if you know you have had credit challenges in the past and think that you might not qualify. With a full review of your income and assets, you can get an idea of where you are today, and get advice on what you would need to work on so you are ready to reapply again if you aren’t able to get approved this time. Don’t get discouraged, if you work hard on improving your scores and saving money for a down payment, there will be a loan program for you.