Getting ready to buy a home is an exciting time in life. Whether you’re moving to take a new job or enjoy a new environment, there’s a lot to look forward to.
Before you can seriously research homes, though, you need to be pre-approved by a qualified mortgage lender. Without it, sellers can’t verify that you have enough money for a down payment.
Here are the steps to getting pre-approved for your home loan:
Collect All Relevant Documents
The first step in getting pre-approved is collecting the documents you need. Your loan officer uses these documents to evaluate your financial health and offer relevant options. Such documents include:
- Proof of income and employment
- Debt to income (DTI) ratio
- Proof of assets
- Bank statements
- Credit score and history
- Personal identification (e.g. driver’s license, passport)
- Social Security card or number
Gathering all these documents to submit to people you’ve never met before can feel pretty vulnerable. Since a home is the largest purchase most people make in their lives, however, it’s important to remember these are necessary. It’s what your lender uses to determine if you’re financially capable of buying a home and it makes the process simpler for you, too.
Check Your Credit Score
The second step is checking your credit score. Banks use your credit history to see how effectively (and quickly) you pay off loans.
In most cases, a credit score of 700 to 740 is considered good, 741 to 800 is very good or great, and 801 to 850 is excellent. The average credit score in the United States is around 710 over the last two to three years.
The higher your credit score is, the better your pre-approval process will go. Bear in mind that you don’t need an excellent or perfect credit score to get a home loan. You simply need proof that you make payments on time and aren’t accruing more debt than you can handle with your current income.
Apply for Pre-Approval
The third step is completing your pre-approval application. This is an online form you fill out with a mortgage lender.
The application walks you through several questions to determine what your financial situation can afford. Questions include the type of loan and home you’re considering, how far along you are in your buying journey, your credit score, and whether or not you’re a first time buyer.
Once your application is complete, you can expect an approval or referral in a few minutes. Thanks to robust modern technology, lenders’ underwriting algorithms determine what you’re eligible for based on the info you provided in the application.
Share Your Pre-Approval Letter With Your Agent
Now that you have your pre-approval result in hand, the fun part begins! The fourth step is sharing your pre-approval letter with your prospective agent — especially because most agents require proof of pre-approval before entering into a contract with you.
As long as you got the pre-approval amount you wanted and you have an agent lined up, you can start seriously considering homes. Your agent is a great source of information regarding other financial questions you may have about the home buying process.
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