What Pre-Approval Means and How to Get Started?

Pre-approval is a process that defines how much you can lend to buy your house. For preapproving yourself, your lenders look for the income, assets, and credit score to check the availability of the loan for that you can get approved for.

This is hard to shop for a home without knowing the capability of how much you can pay for. In that case, Pre-approval mortgage Richmond Hill mortgage pre-approval can help you in shopping smarter. Let’s get into deep about what it means to get pre-approved and how can you start.

Difference between mortgage pre-approval and mortgage pre-qualification

Mortgage pre-qualification is a quick and first step. In this step, you are looking at your financial situation to the lender. Here you will share all the information like your debt, income, and assets. Pre-qualification doesn’t need any cost or any credit analysis.

Pre-approval needs a little bit more than pre-qualification. Here you need to fill up the mortgage application and application fee. In that case, the lender may also need other documentation like your credit history and score.

Requirements for pre-approval

You need five things to get pre-approved for the mortgage and these are- asset and income proof, good credit score, employment details, and other documentation.

1. Income proof: Here the buyers need to produce W2 wage statements of the past two years, recent pay, year to date income, etc. Apart from that, you may also need to show additional income like alimony or bonuses and two recent years of tax returns.
2. Asset proof: Proof of asset indicates you have sufficient funds for the down payment and closing cost and the cash reserves. Most of the loans come with criteria like buyer private mortgage insurance unless they can pay 20 percent of the purchase price as a down payment.
3. Good credit: To get the approval of the conventional loan, you require a 620 FICO score. If you have a credit score of 760 or higher than it, then you may get the lowest Interest rate. For a 580 score, you may have to pay as little as a 3.5 percent down payment.

The lower credit score holder must make a larger down payment. Lenders work with people who have moderate or low credit scores.

Employment verification: Lenders only borrow people who have stable employment. The lenders will not only tell you to show the pay stubs but also Pre-approval mortgage Richmond Hill may call your previous employer if you have recently changed your job.

If you are a self-employed buyer, then you have to provide paperwork about the concerned business and income. The main factors that indicate the self-employed buyer’s stability are the borrower’s income source, location, and nature of the business. Most importantly, the self-employed borrower needs to show at least two most recent years of tax return

Other documents: For pulling the credit report, the borrower may need to copy the buyer’s driving license and social security number along with the signature.

When you need to get pre-approved

A mortgage pre-approval letter is valid for 60–90 days. Here the lender writes down your expiration dates as your credit profile may change in the future. If one pre-approval expires, then you have to fill up another application and submit it to get a new one.

If you are looking for a home loan but have difficulties in getting a mortgage, then the pre-approval process may help you in identifying the credit issues. Before you start a serious home search, seek pre-approval six months to one year in advance. It helps you in putting a stronger position for improving the overall credit profile. In the hot housing markers, due to intense buyer demand and limited home sales options, they may not allow buying a home without a pre-approval letter.

The pre-approval letters

After getting pre-approved, your lender will give you a pre-approval letter. The official document indicates you as a serious buyer and you have financial means in making something good for purchasing the home. The pre-approval letter includes purchase price, amount of loan, property address, interest rate, and down payment amount.

To get the best deal on your purchase price for Pre-approval mortgage Richmond Hill, go through the pre-approval process with other lenders. If you are new in thinking about homeownership, then this pre-approval process can help you in getting your credit and finance in good shape.