Purchasing a home is often an overwhelming process -- especially for first-time home buyers. That’s why we’re creating a blog article series to guide you through your first home purchase, and answer your questions at every step along the way. So what’s the first step? As a serious shopper, your first task is to get a mortgage pre approval. This article will explain what a mortgage pre approval is, why you should get one, how to get one and the pitfalls to avoid.
What is pre approval?
A mortgage pre approval is an indication that a lender has looked at your credit history and income, and has deemed you a suitable candidate for a mortgage loan. Pre approval might only remain in effect for a certain amount of time, so be prepared to begin your house hunt in earnest.
Why get a mortgage pre approval?
Having gone through the pre approval process indicates you are serious about purchasing a home, and thus makes you an attractive buyer to both Realtors and sellers. So it's no wonder why, "Are you pre approved?", is often the first thing a real estate agent will ask before taking you house hunting.
Having pre approval also lets you know how much you can afford to pay for a home. Plus, when you’re ready to make a purchase offer, your Realtor and the seller will want to see a pre approval letter. Many sellers won’t even entertain offers from buyers without pre approval, so having secured it can give you the edge on your competition -- which is especially important in a fast moving housing market like Austin.
The pre approval process
To start the pre approval process, make an appointment with a lender, and then prepare for your meeting by making copies of the following documents:
- Last 2 years’ tax returns
- Last 2 years’ W2s
- Recent pay stubs
- Last 3 months’ bank statements
- Current 401K statement
- Current stocks/bonds statements
Lenders will evaluate your credit report, employment history and income to advise you about the loan programs you qualify for, the top-tier amount you can borrow and the interest rates you’ll be offered.
Other sources of income you’ll want to provide include ...
- Income from a second job
- Social Security payments
- VA and retirement benefits
- Child support
Last but not least, get copies of your credit report and the scores from each of the credit bureaus.
With these documents in hand, a loan officer will submit your application to an underwriter for the pre approval decision. If your file is sent to an automated underwriter, you’ll have your pre approval letter within minutes. It will include a list of any conditions that need to be met for full approval.
Avoid these mortgage pre approval mistakes
To keep your credit score in good standing, do not make the following mistakes:
In our next article, we'll cover the second step in the home buying process, shopping for a mortgage. Don't miss our next article in the first-time home buyer series!
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- Apply for a new line of credit
- Take on new debts or make large purchases
- Cancel any current credit accounts
- Ask a creditor to lower your limit
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