Pre-Approval Letter | Why do I need to be Pre-qualified?

There are two ways of estimating your borrowing power: Bottom-line-qualification and On-line-approval. A bottom-line-qualified” and “pre-approved” are not the same thing. There is a difference. Looking at a mortgage calculator on line and determining how much a mortgage payment will be, depending on the down payment and price of the home, does not count as a pre-approval.If you are in the early stages of the home-buying process, getting pre-qualified by a lender gives you a good idea of what you can borrow. You simply provide income, debt, and down payment figures. The lender will then provide you with an estimate of how much house you can afford.This is often done quickly, over the phone, and you have no obligation to use that lender to get a mortgage.Being pre-qualified simply means you have looked over the numbers and have determined you can afford a certain mortgage payment. A bank may have even done this for you but to be pre-approved means the bank will actually loan you that amount of money to buy a home.

Pre-approval requires a more in-depth look into your finances to determine exactly how and why you can afford a certain home.Lenders will sit down with you and go over all your income, debt, liabilities and assets to determine a monthly payment you can comfortably afford. You typically usually don’t want more than 25% going toward a housing payment.You can go up to 38%, on a case by case basis.The bank will factor in all your current debts and decide if you can afford to pay back the loan based on all your other responsibilities. Lenders have stricter requirements now and require proof of your income and funds in the bank.

Credit scores also make a big difference in the interest rate and fees you will pay for a loan.The bank will provide letter that indicates the amount that they are willing to provide as a loan.Unless you intend to purchase a new home with cash, you will need to obtain a mortgage pre-approval letter because most sellers today will not even entertain the idea of selling their home to you without a pre-approval letter provided to them first. It would be a waste of the seller’s time and energy to try to sell you their home if you can’t qualify for the mortgage.Would you like it if you were trying to sell your home and you took your house off the market and placed it in a pending status only to waste your time will someone who can?t qualify for a loan?

Bottomline

You wouldn’t want to find your dream home only to discover half way through the process that you can’t remotely afford it. It will save everyone time, hassle, and of course heartache.If you are looking to get pre-approved for a mortgage loan, then there are several items that you will need to provide to your mortgage professional or mortgage broker.

The first step in the pre-approval process is to find a mortgage professional or mortgage broker that you feel comfortable working with. The more information that you provide upfront for your mortgage broker, the better off you will be in the long run and the less chances you have for any problems or delays in closing. To obtain a pre-approval letter, your lender will ask you to provide them with a number of documents that will create a “snapshot” of your current financial health and your ability to borrow. For each adult who will be on the loan application, the lender will require:

30 days worth of pay stubs

• 60 days worth of bank statements for every bank account
• W-2’s for the last 2 years
• Tax Returns ALL pages for the last 2 years
• Photo ID’s
• Name, address, telephone and fax of your employer(s) for the past 2 years
• Name, address, telephone and fax of your landlord(s) for the past 2 years.
• If you are self-employed, you will need tax returns from the last two years

A current mortgage-specific Credit Report will be needed for a pre-approval to be issued, and must be pulled by the issuer in many states. Generally, if you’ve been pre-approved for a credit-based mortgage without a credit check by the issuer of the letter, that pre-approval letter isn’t worth the paper it’s printed on.

With this information and your permission, they will run your credit, verify your employment & your earnest money deposit, and create a file that is ready to be submitted to the underwriter once you have found your home. Your lender will then be able to provide you with a mortgage pre-approval letter that you can give to buyer’s agent.

Your income level will help the mortgage broker determine your DTI (debt to income ratio) and give you an accurate purchase price for a new home. There are a variety of factors that will greatly affect your interest rate. Lower credit ratings and scores will equal higher interest rates which will mean a higher mortgage payment. The amount of your down payment will influence your interest rate as well. The type of loan you are going to get will affect your interest rate and down payment as well as other fees charged in connection with your loan. Pre-approval is usual quick and relatively painless if you have a 620 or better . Usually you can get pre-approved within 24 hours with the necessary income verification and supporting paperwork on hand. Online sites can pre-approve you immediately, but you’ll have to provide the verification to a lender eventually. You are under no obligation to use that lender for the loan (though most buyers will).

Once the borrower is pre-approved, they can begin shopping for homes that fall within the amount of the pre-approval offer. A pre-approval is subject to the borrower’s continued good credit and usually remains valid for 60 or 90 days, after which the borrower must reapply in order to make sure the loan offer is still good.