It is important to note that getting prequalified for a home loan is one of the essential steps you need to consider when you are beginning your home search process. Pre-qualification helps you determine the amount of home that you can comfortably afford and proves to sellers that you are a genuine buyer. Here is a comprehensive, easy-to-follow guide on how to get preapproved for a mortgage loan.
Research Lenders The first thing that you have to do is look for a lender and decide on them. One of the best places to look at is to find lenders who are giving out affordable interest rates and charges. When searching for a lender, you can search the internet for them and check for reviews from other customers who have been served before. The best way to choose a lawyer to represent you is by asking friends or family members who they used and would recommend. After you have narrowed your list to a few lenders, call each one and interact with their customer services. Prequalification involves providing some basic personal information about your financial situation, so you should feel comfortable with the lender you contact.
Gather Your Financial Paperwork When you are ready to start with prequalification process, it will be wise to gather all the necessary documents to support your financial status. This includes things like:
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Two years’ tax returns
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Employment records in terms of W-2s of the previous 2 years
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Last thirty days’ pay stubs
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Bank statements for the last two to three months
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Credit card and student loan statements are important as part of the debt information.
- Deposit sum, which is ready to be paid
This way, having all this paperwork ready, would tremendously help in the prequalification process.
Complete a Loan Application To start the prequalification process, the lender will request you to complete a full loan application. Be ready to provide a large amount of personal and financial information including:Be ready to provide a large amount of personal and financial information including:
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Full legal name
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Date of birth
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Social Security Number
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Addresses of the applicant or patient as of now and the addresses of the applicant/patient from the last five years.
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Full name and address of the employer
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Further, the details of salary and income are also excluded from the disclosure.
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Tax and asset documentation also refer to tax documents and other documents that are used to prove ownership of an asset.
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Debt which may involve contractual and promissory notes.
- Credit report authorization
It is important to fill in all the necessary details as accurately as possible to get a clear idea of one’s budget through the preapproval.
Undergo Credit Check and Verification Some of the requirements that need to be met during the pre-qualification phase include the lender reporting and analyzing your credit history and scores. The lender is considering your repayment history, the amount of credit used, the length of your credit history, and new credit accounts.
The borrower will also provide all necessary information about his/her income, employment, and the assets taken as a security. Documents you furnish will be reviewed to ensure that the amount and details are correct. One should disclose all the financial information initially and be clear about what can be expected.
Get Your Prequalification Letter Based on your application and after assessing your financial documents, the lender will issue a preapproval letter that outlines the amount of credit you can be preapproved for. This letter states a maximum home loan amount and minimum down payment based on your:This letter states a maximum home loan amount and minimum down payment based on your:
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Income
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Assets
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Credit score
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Current debts
- Debt-to-income ratio
And other conditions such as type of mortgage and the type of loan program. As a result of this prequalification letter you are now aware of how much house you can afford to purchase.
Understand the Terms Be sure to understand all the details and terms laid out in the prequalification letter:Be sure to understand all the details and terms laid out in the prequalification letter:
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Loan amount – the maximum price of a home that you can afford.
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Interest rate – The rate that the prequalification estimate is based on.
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Monthly payment – Principle, interest and all charges included
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This is the percentage of the price of the car that is paid upfront or the amount paid on the spot.
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The type of loan and its program
- The prequalified rate and terms validity period
If there are any points you do not understand, be sure to get clarification from the loan officer in regard to the prequalification so that you are fully informed as you embark on home shopping. This assists in eliminating any disappointment that may come up in future when one has developed an affection for a particular house only to realize that they do not meet the requirements to own it.
Shop With Confidence Prequalification does not mean that you will be granted a loan but it means that a specific lender has reviewed your financial and credit status and approved you for a specific loan amount. Once you have obtained a prequalification letter, you will be comfortable with the price range and loan details to look for homes.
When you make an offer, the prequalification letter proves to the sellers that you are a serious buyer, and your finances will be approved. However, to be safe, make sure you follow your lender’s guidelines at every step of the home purchasing journey to gain the final approval for your mortgage.
Stay Within Your Budget There is always the temptation to fall in love with homes that are just a bit above your pre-approved price range. However, not deviating from the prequalified limits within about 5 ensures that the loan process runs efficiently. While hunting for a home in your preapproval price range is necessary as it determines the final loan approval.
The time may come when you can be ready if your situation changes. So, if anything happens to you between the time you get prequalified for a mortgage loan and the time you actually apply – such as you getting a new credit card or a new employer – tell your lender. They can easily re-credit analyze your financial position in order to modify pre-qualification terms or loan sum before extending any offers. This helps avoid any unpleasant surprises that may come up after identifying the right house to buy and make your dream of owning a home come through.
Prequalifying for home loans directs you to mortgage approval that shows just how much you are capable of being approved for to purchase a house. Go through every process of prequalification, make sure to understand each and every term, stick to your budget as recommended, and any changes in your financial capacity then you can be able to buy your desired home.
