To get a pre-approval, you will need to tell your lender about things such as credit, debt, income & assets. To get an estimate of how much you can borrow, they will ask to review your credit history, your bank statements, and income statements. The lender, then, decides whether you are qualified for the loan or not. A pre-approval is an offer by a lender that expires in 90 days.
Here are the following steps that are necessary to get pre-approved.
Credit Score Check:
Before approaching the lender, you should have full confidence in your credit score. And that can only happen when you know where you stand with your credit score. A score of 620 is considered to be a good credit score. However, you can get better rates if you have a higher credit score. Typically, borrowers with a credit score of 740 or more are preferred by lenders. They are the ones who get the best mortgage rates as well.
Credit History:
There are ways to amend bad credit history; a lender will surely take the credit history out and scrutinize it. So, it’s important that you request copies of your credit reports, and challenge any errors before approaching the lender. You can also work with your creditors and resolve any delinquent accounts.
Debt-To-Income Ratio Calculation:
With the help of online and free NerdWallet’s, you can easily calculate your debt-to-income ratio or DTI. It is the percentage of your gross monthly income towards your debt payments. These debts can be anything from car loans to student loans to even credit card payments. Typically, borrowers having 36% DTI or lower get better rates from the lender, anything higher than this may not even qualify since this is a signal that you are carrying too much debt already.
Prepare The Necessary Documents:
Documents that are needed to get pre-approval are related to your personal information as well as your income information. These may include social security, financial statements, income statements, address as well as your employment details. Be as transparent as you can with all these documents and information. In case you have a co-borrower, you will need him to submit all of this as well. Moreover, you will need to provide proof of income, employment record of 2 years. If you are self-employed, you will need tax returns to prove that.
Approach More Than One Lender:
Don’t put all your hopes in one lender, but rather approach a couple or more. Contacting more than one lender will help you compare rate and get you the right partner, this is a smart move to save money. You can save as much as $430 in interest when you compare rates. This can accumulate to $9,200 in a 30-year mortgage. Does this practice hurt you in any way? No! Shopping for rates by approaching more than one lender doesn’t hurt your credit score at all.