If you are getting ready to buy a home, a mortgage preapproval can provide you with a solid starting point. Buyers who are preapproved have a stronger standing in a competitive market than buyers who start house hunting before talking to a mortgage lender.
Exactly what is mortgage preapproval?
A mortgage preapproval is a letter from a mortgage company verifying that you are preapproved for a specific loan amount. Your identity, employment, income, assets, debt, and credit have already been documented, checked, and verified.
When you apply for mortgage preapproval, you go through most of the steps of actually applying for a home loan, with the exception of official loan disclosures, title work and appraisals. Basically anything that needs to have a specific property tied to it in order to be completed.
Your loan officer will request a substantial amount of information from you, and then all of that information will be authenticated. A hard credit report will also be pulled and your credit score added to your file. Your debt-to-income (DTI) ratio will be evaluated, and your ability to meet a minimum down payment confirmed.
Once your preapproval letter is issued, you can confidently shop for a home within the budget you’ve been preapproved for. You can show your letter to sellers to prove you are a serious buyer, and that in-depth vetting of your ability to purchase a home has been completed.
Preparing for the Mortgage Preapproval Process
It’s a good idea to prepare for the preapproval process well in advance of applying. Since the process is almost the same as a complete home loan application, you’ll want to make sure your ducks are all in a row before you start the process.
This means taking a good hard look at your finances and your credit, and taking steps to improve your DTI ratio and credit score. Addressing these issues can lead to faster preapproval and a higher loan amount.
For most people talking with a Loan Officer before applying or making any changes to your finances makes sense. The last thing you want to do prior to getting pre-approved is try to improve your ability to qualify only to inadvertently make your situation worse.
Check your credit score and report
You check your credit once a year for free for each of the three major credit bureaus. Ideally, your credit score will be 740 or higher for the best mortgage interest rates. However, even a credit score as low as 500 doesn’t automatically shut you out of a home loan. Look carefully for any inaccuracies you may be able to dispute and get removed from your report.
Reduce your debt-to-income (DTI) ratio
Your DTI ratio is your monthly gross income divided by your monthly debt, including housing costs, credit card and auto payments, and student loan or personal debt. Most lenders look for a DTI lower than 38%, although certain home loans can be approved with a DTI ratio as high as 50%. You can reduce your DTI ratio by paying off as much principal debt as possible or by getting your payments lowered.
Gather your documentation
You’ll need to be able to prove who you are, where and for how long you’ve been employed, what your average monthly income is, and what your assets are. Start getting bank statements together early, and remember all your documents will need to be as recent as possible (within the past 60 days is typically mandatory.)
Sammamish Mortgage Loan Officers Are Standing By to Preapprove Your Mortgage
Are you ready to get preapproved for a mortgage? Don’t be intimidated by the steps required. We can help make the process as easy and stress-free as possible. Get preapproved today!
Sammamish Mortgage has been in business since 1992, and has assisted many home buyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.
Contact us if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.