(719) 629-7401
Call Ryan Nash Today!
The Mortgage ProcessSo you are ready to buy a house.
You think you are, anyhow. But can you afford a house? Will you be approved for a mortgage? Before you start looking at houses or even talk with a realtor, you want to determine if you are able to get a home loan. There are a couple of terms out there you may have heard: mortgage pre-qualification and mortgage pre-approval. What’s the difference? |
|
Pre-Qualification
A loan pre-qualification means that the lender decides you are, in fact, a good candidate for a loan. Not only that, but they will let you know how large of a loan you may be approved for. However, loan pre-qualification is not a commitment from the lender and doesn’t state interest rates and terms. This is based on basic information provided on your application. This is why places like Quicken Loans say, "Get pre-qualified in seconds". Honestly, it doesn't hold a lot of weight until you get into the approval process.
|
Pre-ApprovalA loan pre-approval is where the process starts to get in depth. Everything you put on your application needs to to be verified with documentation. You must also pass through an automated underwriting system that are set up through Fannie or Freddie loan guidelines. So how do we get there?
|
How to Get Pre-ApprovedBefore you make an offer on a house or even start looking, you will need to gather a number of documents in a folder or electronically. You may need some of these same documents again later, so keep them folder handy.
|
AddressBe prepared to provide your addresses and dates you resided there for the past 2 years, including your landlord’s name and address if applicable.
If you have lived in multiple places over the last 2 years, plan on being able to provide all addresses. |
Proof of IncomeYou will be asked to provide your last two years of W-2 statements and tax returns. The lender will also want copies of your most recent 30 days of pay stubs and proof of any additional income.
Some lenders may have you sign a document giving them permission to obtain a copy of your tax returns directly from the IRS rather than you providing a copy. With the advancement of technology, it is now typically fairly painless to scan and email or upload these documents, compared to spending a lot of extra time and money getting them copied or mailed. Technology is a wonderful thing :) |
Debt to Income RatioYour debt-to-income (DTI) ratio should be below 45% (in some cases VA and FHA loans allow you to go up to 50% or more with compensating factors), including mortgage and escrow (insurance and county taxes) payments.
What is DTI? You add up all of your monthly income, then divide all of your monthly debts (loan payments, minimum credit card payments, rent or mortgage, etc.) and multiply by 100. Your mortgage professional will be the one keeping this in check for you when it is determined how much house your able to purchase. |
Employment VerificationThe lender will also check on your employment status. You want to ensure you have 2+ years at the same job or in the same field of work. Your employer(s) will be called to confirm this information. For self employment, you are looking at at least 2 years of experience in the field and at least 1 year of business tax returns.
|
Proof of AssetsThe lender wants to know that you are able to provide a down payment and cover the loan costs. So, you will need to provide copies of 60 days of banking account statements, investments or anything else you will use to draw funds from for the down payment and closing costs.
The good news is, there are conventional programs out there where you can put down as little as 1-3% (and still have reduced or no mortgage insurance), FHA 3.5% and VA loans 0% down. |
Good CreditIn order to be approved for a home loan, you need good credit. Lenders typically want to see scores 620 and above, but some lenders we work with will go as low as 580.
Now with that being said, just because your score qualifies you, there still may be issues that need to be dealt with showing up on your report. Tax liens or judgement, unpaid collections and accounts that are not current. You will need a credit score above 720 to get the best rates on a mortgage and some lenders offer special elite programs for even higher scores. Note that if you are buying a house with a partner or spouse, the lowest middle score is what is used. So, if only one of you has good credit, you might try and qualify only using information for the person with the better credit. |
What Happens Once Your Pre-ApprovedIf you are pre-approved, you will get a letter saying so along with an estimate of loan terms. At this point, you mortgage professional will be able to quote or potentially lock in rates for a set period of time. Save this letter and also give your realtor a copy. Check with your lender, but the pre-approval is usually good for 60-90 days. Beyond that time, statements and information will need to be updated.
|
A Word of CautionYou could most likely pre-approve you for a loan amount higher than what you anticipated or feel comfortable taking. Sit down and figure out what size of loan payments you are comfortable with and let your mortgage professional and realtor know, that way you are not shopping out of your comfort zone.
If you are approved for a $500,000 loan but really are only looking for a $250,000 mortgage, make sure you are looking at houses that fit that lower limit. You do not want to take out a mortgage so large you are beans and rice for the next 20 years and can’t afford a new furnace or insurance deductible, if and when those unexpected costs come up. |
After Pre-Approval and During the Loan Process
After you obtain your pre-approval letter, you can start looking at houses. This is when you want to protect your finances and credit score.
**This is super important**
To read the Do's and Don'ts for Home Loans Click here
Overall Just Enjoy the Process
You are buying a home, one of the most rewarding experiences you can have so try to have fun with it. Buying a home can really be an easy process as long as you are prepared and educated about ahead of time. It can also be one of the best experiences in your life or one of the worst, get educated, know what to expect and most importantly be as open and honest as possible. We want to get you into a home and make it an easy process for everyone involved, especially you!
Please contact me if you have any questions about the process or would like to look at buying or refinancing a home. (719) 629-7401
**This is super important**
To read the Do's and Don'ts for Home Loans Click here
Overall Just Enjoy the Process
You are buying a home, one of the most rewarding experiences you can have so try to have fun with it. Buying a home can really be an easy process as long as you are prepared and educated about ahead of time. It can also be one of the best experiences in your life or one of the worst, get educated, know what to expect and most importantly be as open and honest as possible. We want to get you into a home and make it an easy process for everyone involved, especially you!
Please contact me if you have any questions about the process or would like to look at buying or refinancing a home. (719) 629-7401