Mortgage pre-approval is a loan you get before purchasing the home. The mortgage approval process starts with the lender checking your credit score. He’ll also need some essential documents to check your financial stability.
After this process, the lender gives you a pre-approval letter, making you eligible for the loan. Thus, it becomes easier for you to buy a home.
Most home sellers look for buyers with a pre-approval mortgage. This is because it suggests a buyer’s stable financial position.
Checking your previous payment stubs and credit score can help you get a mortgage pre-approval at less interest rate. A pre-approval lasts between 60-90 days.
Moreover, pre-qualification can give an estimated idea of how much it takes to buy a home. Pre-approval and pre-qualification are different. Let’s understand how.
Difference Between Pre-Approval And Pre-Qualification
Pre-qualification can be best understood as the initial step toward acquiring a pre-approval mortgage. It gives a rough experience to a borrower who wants to get a mortgage pre-approval.
Pre-qualification is a comparatively simpler process than pre-approval, as you can get it online within an hour. Conversely, a pre-approval mortgage requires extensive financial information, including W-2 wage statements and other taxes.
The result of pre-qualification can be seen within a few hours. In contrast, the lender’s pre-approval mortgage takes ten business days as the process requires verification of documents and a few formalities.
That is why passing a pre-qualification is easy, but getting a yes for pre-approval is a bit more tedious and comes with a lack of surety.
If you are new in the world of mortgages and carry a desire for a home of your own, you can initially choose the pre-qualification process. With your research and counselling, you can try applying for a pre-approval mortgage later.
If you have made up your mind about buying a pre-approval mortgage, make sure to keep the following documents ready before applying:
- Proof of extra income sources like commission and bonus.
- Information regarding the details of other loans you have taken in the past or recently (the lender checks if you have paid your previous loans).
- Pay stubs of the last two years (applicable to those who are employed).
- Debt-to-income-ratio (DTI) or gross monthly income and debt payments.
- Identification like a passport or a driving license, to verify your American citizenship.
- W-2 statement (contract between employees and the corporation they work in) of the past two years to determine the stability of income.
- If you are self-employed, then you need he account statements for the past two months to prove income stability to the lenders.
- If you are staying in a rented house, you must provide proof of punctual rent payment.
Benefits of Pre-Approval Mortgage Process
Following are the benefits of getting a mortgage pre-approval:
- Shows stability: If you are qualified for pre-approval, you have a stable income and are less likely to cheat on your lender.
- Easy negotiation: The excellent image of a borrower makes the negotiation process more accessible.
- Financial planning becomes less complicated: A pre-approval mortgage gives you a structured idea of your finances through which you can plan your expenses efficiently
To Sum it Up
Before starting the pre-approval process, you should apply for a pre-qualification. You can also calculate your mortgage expense through various online mortgage calculators.
Meeting a financial counsellor can help if you don’t know how mortgages work. You will be less prone to fraud in the lender space as a pre-planned buyer.
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