Informed homebuyers lay a solid foundation for homebuying by getting prequalified for a house loan with the guidance of a trusted mortgage lending partner. There are numerous hoops to jump through during the home-buying process. Luckily, trusted real estate agents and experienced mortgage lenders navigate new buyers and help them avoid common house-hunting pitfalls. They’ll both recommend, or more likely insist, that a loan approval letter accompanies any offer made on a property. Loan approval may seem like a formality, but the process is essential nonetheless. Get Prequalified For a House Loan.
Additionally, prequalification letters and loan approval letters are not created equal. While prequalification letters indicate the general financial bracket a buyer should shop within, loan pre-approval letters are more specific and state the loan amount a borrower can access to fund the property. In essence, approval letters convey serious buying potential to property owners. Accordingly, by prioritizing the preliminary steps in the home-buying journey, buyers can focus on more important things, like that dream of a three-car garage.
Homebuyers should consider these popular lending professionals to get prequalified for a house loan.
Mortgage Brokers
Mortgage Brokers serve as liaisons between home buyers and mortgage lenders. Unquestionably, mortgage brokers provide specialized services to buyers. Since they are not lenders, they are experts in various loan options. In a nutshell, mortgage brokers shop the market for different types of loans that will suit the individual needs of new property buyers. The goal is to find loan programs that offer the best interest rates and loan terms to find the best mortgage for their client’s specific needs.
Mortgage Lenders
Mortgage Lenders approve finance and underwrite real estate purchases in-house. Since there isn’t a middleman in the transaction, mortgage lenders have specific requirements a borrower must meet to get approved for a house loan. Mortgage lenders set their own loan terms, mortgage payment schedules, down payment, and closing cost requirements based on their clients’ personal finance documentation and other financial information.
Local Lenders
Local lenders may offer a more personalized experience for home buyers looking to get prequalified for a house loan; considering most loan officers live near their office, they often have a successful track record of being local experts. Additionally, many local lenders work hand-in-hand with local realtors.
Traditional banks
Traditional Banks are financial institutions that offer a variety of home loan products to home buyers. Many big banks employ direct lenders. Direct lenders originate loans in-house and provide underwriting services under one roof, offering clients a streamlined process for underwriting and fast approvals for potential home-buyers. In addition, many local banks also employ portfolio lenders who maintain ongoing mortgage ownership—adding the benefit of continual in-person communication with new homeowners. Large mortgage banks often offer access to retail lenders and online mortgage lenders.
Personal financial documentation lenders require to get prequalified for a house loan.
-Identification: Driver’s Licence or Passport.
-Tax returns & W-2 forms for the past two years.
-Self-employed applicants must provide profit and loss statements (P&L) and federal tax returns for the past two years.
-Pay Stubs or P& L Statements: These documents show proof of income for the past thirty days.
-Bank statements for the past two months.
In some cases, and depending on individual circumstances and financial situations, applicants may be asked for additional documentation for loan approval. These might include pension, social security, disability, homeowner’s association, student loans, divorce statements, bankruptcy discharge documents, or current mortgage statements if the borrower owns other properties. Additionally, some lenders will require checking, savings, brokerage, 401k, IRA, Roth, and 403b accounts, along with all account numbers, and remember to include complete files.
How Credit Scores and DTI ratio affect the preapproval process.
Creditworthiness
Specifically, borrowers must prove creditworthiness and a proven track record of their ability to repay their debts. Effectively, lenders rely on loan repayment. When a loan defaults, every player takes a hit. Consequently, banking institutions have specific criteria for measuring applicants’ ability to stay current on loans and practice financial responsibility.
Although the government sets mortgage rates, interest rates depend on a borrower’s track record of timely payments on prior financial debts like credit cards and car loans. When a lender runs a credit check, A borrower’s credit history will prove the likelihood of the client prioritizing their monthly mortgage payment. The history of timely made prior debt payments indicates how likely they are to make their new monthly payment on a new home loan. Whether a borrower owns multiple properties or is a first-time homebuyer, lenders require a credit report with a score of 620 or above.
DTI of 43% or lower
Second is proof of a debt-to-income ratio (DTI) of 43% or lower. Overall, DTI ratios measure how well a borrower manages their overall monthly income and monthly debts. Accordingly, mortgage preapproval depends on a ratio of 43% or lower because lenders need to ensure borrowers can afford their existing living expenses combined with mortgage insurance, HOA fees, and all of the additional costs of homeownership.
Buying a property requires more effort from a potential buyer than simply entering their contact information and answering some personal FAQs on a website. Effective research when homebuying is more complex than simply establishing a general price range and finding a home seller offering a property that matches the purchase price. In truth, securing the optimal loan and the lowest possible interest rate is as important as finding a property in the perfect location.
Two contributing factors
By and large, credit and DTI are the two contributing factors for determining a borrower’s mortgage interest rate. Whether a lender is offering a conventional loan, like loans provided by the Federal Housing Administration (FHA loans), or a refinance loan, like a home equity line of credit (HELOC) for refinancing home equity to tap into home equity funds, every loan requires good credit and low DTI. As a rule, the better the credit score and the lower the DTI ratio, the lower the interest rate lenders can offer when setting their clients’ loan estimates.
Three common mistakes to avoid when borrowers get prequalified for a house loan.
The Mortgage Pre-Approval Letter isn’t from a Local Lender.
A critical consideration in today’s world of online lending is that real estate is very much a local business, and listing agents tend to feel more comfortable with local lenders they know and trust. Without a doubt, real estate agents know their market, and they’re familiar with most reputations and track records with local lending options. Obviously, that’s not necessarily the case with an out-of-area lender. Occasionally, issues arise with loan financing. Subsequently, tracking down a lender who lives in a different state and possibly in a different time zone is not as simple.
Regarding real estate, local agents have local hookups that can expedite closing times. One example is choosing the right appraiser. In general, online lenders may not have approved appraisers for each city appraiser, resulting in random, readily available options.
Meanwhile, local agents commonly have local appraiser contact information readily available. The goal is to find competent professionals. After all, missing a big issue during a home inspection or overlooking an equity-enhancing renovation project directly correlates to the overall bottom line of the real estate sale.
They Give You the Wrong Kind of Letter.
Commonly, real estate terms need to be clarified. Two examples are the pre-approval letter and the pre-qualification letter. A pre-approval letter simply states the price range and likelihood of loan approval. Meanwhile, a pre-qualification letter proves the homebuyer has submitted their loan application. A little work and legwork are required to secure a prequalification letter; however, this letter confirms credit, employment, and assets have all been reviewed and verified, and the borrower is qualified to purchase the home.
The Loan Approval Letter is Over the Offer Price.
Sometimes, borrowers may qualify for more than the listed home price. Above all, buyers don’t want to lose their bargaining power right out of the gate. As a solution, borrowers need a revised loan approval letter, which their lender draws up. Obviously, keeping the loan affordable equates to more money in the buyer’s pocket, making the effort of revising the letter absolutely with the effort.
Homeownership starts with a plan, and finding the right lender to get prequalified for a house loan is essential. The next step is trusting the guidance of a reputable mortgage lending institution.
The steps to get prequalified for a house loan can often feel daunting. Serious buyers will get the attention they deserve by understanding that research and education are vital for partnering with the right lender or broker and ultimately securing the perfect loan. Ultimately, the goal is to find the lending professional aligning with each buyer’s situation.
It is natural to scope out a few potential lenders. In fact, it is common for many buyers to go through the mortgage pre-qualification process with a few lenders before deciding on the best lending option for them. For this reason, new home buyers should come prepared with financial documentation and be forthright with any challenges, financial red flags, or questions they may have. By practicing effective communication and partnering with a trustworthy lender, buyers can rest assured they are on the right path to homeownership.
Now that you know how to get prequalified for a house loan, let’s connect you with a lender who can help.
The steps are simple:
1. Schedule a Call: An experienced loan officer can discuss your lending needs and guide you through the possibilities.
2. Get Approved: We’ll help you through the mortgage application process and facilitate the steps for approval.
3. Exhale: Put your feet up and feel secure knowing you made the best decisions about your home loan.
With proper guidance, you can get your first home, accommodate your growing family, and start that renovation project—whatever goal is on the horizon. An alliance with Mortgage Insiders will give you the confidence to know that your mortgage loan is setting you up for financial success. Mortgage Insiders offers today’s latest financial news and mortgage trends. Check out their channel for current events.
