How to Get Pre-Approved for a Mortgage
In the previous blog posts in our “Top 10 First-Time Homebuyer Tips” series, we discussed Determining your Ideal Budget and Saving for Home Buying Expenses. Step Three in our Home Buying Series is to “Get Pre-approved for a Mortgage”.
Once you determine your ideal budget, the next crucial step in buying a house is to get pre-approved for a mortgage loan. It sets the tone for your home search, helps you narrow down your options, and demonstrates to sellers that youâ€™re serious about buying.
The process of getting pre-approved for a mortgage may seem daunting, but it doesnâ€™t have to be. By following these simple steps, you can obtain a pre-approval letter and get one step closer to buying your dream home in no time.
1) Know Your Credit Score
One of the first things youâ€™ll need to do is pull your FICO credit score. This will give you an idea of where you stand financially and what kind of interest rate you can expect to pay on a loan. If your credit score needs some improvement, there are steps you can take to raise it before you apply for a mortgage.
How to get your FICO credit score?
The interest rate is one of the most important factors to consider when taking out a loan. The interest rate on your mortgage has a direct impact on your monthly payment. The higher the rate the higher your payment will be.
A. Check Your Credit Card Statement- If you have a credit card, thereâ€™s a good chance that your lender is already giving you your score for free. Capital One and Discover are two examples of issuers that show borrowers their FICO scores on monthly statements.
B. If you are unable to get your FICO credit score from your credit card company, you can use myfico.com. However , it’s not a free service.
Are you wondering why I didn’t mention using apps such as Credit Karma and Credit Sesame? When applying for a mortgage preapproval, the lender will review your FICO score. Majority of the credit apps we use today provide a Vantage score. Although, those apps are great for determining your credit history. The score it provides would not be an accurate representation of what the mortgage lender would see on your credit report.
2) Gather Documentation
Once you know your credit score, itâ€™s time to start gathering the documentation that the lenders will need to approve your loan. This could includes tax returns, pay stubs, bank statements and investment statements. Having all of these documents ready will speed up the process and help your loan officers do their job more efficiently.
A best practice is to have these files saved to your computer, not print them. When applying for a mortgage approval, majority of the applications are completed online. The files can easily be uploaded to the lenders secure portal.
3) Shop Around for Mortgage Lenders
After youâ€™ve gathered all of your documentation, itâ€™s time to apply with your chosen lenders. In the next section, we will discuss some important terms to keep in mind. Not all lenders are created equal. Itâ€™s important to shop around and compare rates, fees, and customer service before settling on a lender.
Talk to your local bank or credit union, get quotes from online lenders, and compare rates and fees. And remember, just because one lender offers you a great deal doesn’t mean you have to use themâ€”you can always shop around for better rates.
Important Mortgage Terms:
Interest Rates: One of the most important things to compare when shopping for a loan is the interest rate. The interest rate will determine how much your loan will cost you over time. It’s important to pay attention to the Annual Percentage Rate (APR), which includes the interest rate plus any fees charged by the lender. The lower the APR, the better.
Repayment Terms: Another thing to consider is the repayment term. This is the amount of time you have to repay your loan. Loan terms can range from a few months to several years. Choose a repayment term that you’re comfortable with and that fits your budget.
Fees: Some lenders charge origination fees, which are usually a percentage of the loan amount. These fees can add up, so be sure to take them into account when comparing loans. Other lenders may charge prepayment penalties if you pay off your loan early. Again, this is something to keep in mind when shopping around for a loan.
This process doesn’t have to be a daunting task. Following these simple steps will help ease the process of getting pre-approved for a mortgage immensely. By knowing your credit score, shopping around for lenders, gathering documentation, getting pre-approved, locking in your rate, and following up with your realtor, you can take control of the situation and increase the chances of having a successful home purchase experience overall.
If you have any questions or would like more information, please contact me at [email protected]. I would be happy to help you with all your real estate needs.
Thank you for reading! I hope this was helpful.
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