How To Get Pre-Approved For A Home Loan
Many potential homebuyers put off getting a pre-approval letter until they have found a home they’re interested in purchasing. It is a bad idea to wait to get pre-approved for a home loan for several reasons.
You may not qualify for the loan amount you need to purchase the home
- You may not qualify for the loan amount you need to purchase the home
- There may be financial issues on your credit report that you are not aware of
- The home may be sold before you can make an offer
- A seller may not hold the home until you get the pre-approval letter
Right now the market is very competitive. As a result, home buyers must be prepared to move quickly. Not having a preapproval letter puts you behind other buyers who are already qualified to buy a home.
Most Real Estate Agents will not show homes to buyers until they have a pre approval letter so they can ensure that the buyer is capable of obtaining a loan in order to purchase the property.
What Is A Mortgage Pre-Approval Letter?
A mortgage pre-approval letter is a document issued by lenders after they have performed a hard credit pull and verified your income. It states the amount of loan that the institution is willing to lend you.
While a lender is willing to loan you a large sum, that doesn’t always mean that is the amount of loan you should get or that you can afford. It’s good practice to view the pre-approved amount as the MAXIMUM amount of loan you should get and look for homes that fall beneath that range
What Is The Difference Between Pre-Qualification and Pre-Approval?
These terms can be confusing because they are very similar. A pre-qualification is based upon a soft-pull of a person’s credit history. Getting a pre-qualification does not mean that you would actually qualify for a loan for the amount requested. It is not the thorough vetting process of a pre-approval.
To get pre-approved for a home loan is a much more involved process and sometimes takes several days to complete. You will be required to show documentation and the institution will then do their due diligence to verify that information.
Pre-approval letters show sellers and real estate agents that you are ready and able to buy a home. It can also lock in your interest rate if interest rates are low and ensure that you can purchase your home at the lowest possible rate.
How To Get Pre-Approved For A Mortgage
To get pre-approved for a conventional mortgage loan, your credit score generally needs to be at least 620. Your lender will also look at your debt to income ratio. Generally, most lenders won’t want to lend you money if your payment will be more than 28% of your gross monthly income and if your total debts take up more than 36% of your gross monthly income.
When you apply for a pre-approval, you will need to take the following documents into your lender:
- Tax returns
- Pay stubs
- W-2 for several years
- Loan information
- Information about other mortgages (if applicable)
- Credit report
Some lenders may request additional documentation or information, especially if you are self-employed.
How Long Does It Usually Take To Get
Pre-Approved For A Mortgage?
Depending on the lending institution, a pre-approval can take around one to three days so long as you have all the documentation the lender requires. Once you have a pre-approval letter, your pre-approval will be valid for 60-90 days which gives you plenty of time to search for homes for sale in Salt Lake City and Utah.
Do Pre-Approvals Hurt Your Credit Score?
Now, you may be wondering if you should do a comparison between lenders and ask for pre-approvals from multiple lenders. Some people worry that multiple pulls on the credit reports will impact their credit score.
While this is partially true, hard pulls on a credit report generally result in a 5-20 point penalty. Multiple hard pulls in a 14-45 day period will all count as one query for most credit bureaus. These hard pulls will stay on your credit report for two years after the pull.
This is why many real estate agents will recommend that you avoid making any other large purchases when you are searching for a home. Getting a car loan or other type of large loan can negatively impact your credit score and reduce the amount of the loan your lender is willing to give you.