Getting Pre-Approved For A Home Loan

Getting Pre-Approved For a  Home Loan

If you are serious about buying a home, and you are ready to begin the process, you will need to get a pre-approval for your mortgage. A pre-approval letter is a document from a lender indicating the amount of loan you can qualify for. It is a conditional and tentative nod that you’ll qualify for a specific loan, but it doesn’t guarantee final loan approval. During the pre-approval, a lender evaluates your financial history, including pulling your credit report and score, before issuing a pre-approval letter. Once you have pre-approval, home sellers and real estate agents will know that your offers are legitimate. 

To take it one step further, work with your lender to get fully underwritten. This means that the loan transitions from conditional to absolute. This process takes a bit more time to complete, but allows you the confidence that your loan will pull through.

Why get pre-approved?

A pre-approval validates:

• You can get a loan for a certain amount
• You have a lender who is willing to work with you
• Your finances are in good shape 
• You can streamline the closing for the loan application

What is factored into a pre-approval? 

• Your credit score and credit history 
• Debt-to-income ratio
• Employment history
• Income
• Assets and liabilities

How long does it take to get pre-approved?

The good news—online applications and computerized analysis have made the pre-approval faster and easier. To speed up the process, have all of your documents ready. It may take a little time to gather these documents (see below for details), but don’t get discouraged; it is essential you get through this process. Once submitted, you will get your pre-approval generally within a week, although it can be in as little as three days with the right lender.

How long is a pre-approval valid?

The pre-approval letter is typically valid for 60 to 90 days. Once it expires, you will work with your lender to update your paperwork. Since most of your information will be on file, this won’t take much time.

How do I pick a lender?

Every lender is different. It is important to work with a lender who can help you write the most competitive offer, and different lenders will require you to have different terms. Do your research to find out what their pre-approval process entails and shop around for the best interest rate. Ask your real estate agent for recommendations, as they will have worked with many loan agents. Word of mouth is another way to narrow down your list—talk to your friends and neighbors. Note that the quality and level of service of a provider could be different geographically; it’s important to pick a lender that is particularly strong in your city.

Credit score

Your credit score is a huge factor determining your eligibility for a mortgage loan; 620-640 is the target minimum FICO score you should be aiming for.  Lenders will pull credit reports from Equifax, Experian, and Transunion. They’ll look for: 

• Payment history – do you pay your bills on time?
• How many/what type of credit lines you have open and how long you’ve had those accounts?
• How much of your available credit do you use (credit utilization)?

Gathering your documents

This typically entails: 

• Last two years of W2’s from all employers 
• Last two years of tax returns  
• 30 days worth of paystubs  
• 60 days of bank statements  
• Schedule K-1 (Form 1065) – profit and loss statements if self-employed  
• Asset account statements (retirement savings, stocks, bonds, mutual funds, etc.)
• Driver’s license or passport
• Divorce papers – if applicable (to use alimony or child support as qualifying income)
• Gift letter – if using funding with a gift from a relative 

You can do this!

Once you have pre-approval in hand, home sellers and real estate agents will know that you are a serious buyer. And, you’ll have confidence in what you can afford. Now, we know that entering the real estate market as a buyer can seem overwhelming, but we are here to help. Call the Krishnan Team at 415-735-5867 for a no-obligation consultation. You can also email us at info@ruthkrishnan.com. Let’s do this together!