What Is A Mortgage Preapproval And Do You Need One?

Getting a mortgage is one of the most important things for most people. With that mortgage, you have the opportunity to buy a home and enjoy not having to pay rent. Of course, getting a mortgage is a tough process on its own. That does bring the question, what is a mortgage preapproval? A lot of people mention it, but not everyone knows what this is and why it can be something important to acquire.

The role of a mortgage preapproval

The idea here is that you go to a lender, and they will tell you how much they are willing to borrow you. That way, you have a very good understanding of what you can get as a mortgage loan. In doing so, you will have a great understanding of what price range you can afford when buying a home.

The lender will offer you a pre-approval letter. You can present that letter to various sellers or real estate agents. Keep in mind the mortgage preapproval is nonbinding, so even if you get one from a lender, that doesn’t mean you are forced to work with them. However, it shows how much a lender will offer you as a mortgage loan, and that’s incredibly helpful!

How does the preapproval process look like?

The idea when it comes to a mortgage preapproval is that it’s designed to be seamless, but also accurate. You don’t need to go through a lot of steps, but there are certain things that the lender needs to see and also wants to know.

Your credit score

The mortgage lender will always want to know your credit score. That will be of a huge influence when you try to qualify for a mortgage. In most cases, you should have a 620 score or higher to even qualify for a mortgage. However, if you want to have some of the better rates, a score of 740 or higher is usually required. You can get your credit score for free online. Learn what’s your score and try to improve it if you want to access a mortgage loan and also improve your rates.

Speaking of that, you also want to check the credit history. If there are any disputes, you have to solve them. A lender won’t be ok offering such a substantial loan knowing that they might not get their money back. So yes, you want to solve any disputes before applying for a loan.

What’s your current debt-to-income ratio?

It’s a good idea to go online and find a debt-to-income ratio calculator. That will help you figure out how good of a chance you have to acquire a mortgage loan. For the most part, a DTI that’s up to 36% is ideal for lenders, with lower being the better option here. It does make sense to see how you can improve your current DTI, and there are many strategies to keep in mind here.

Gather all the necessary info and documents

When you want to go through preapproval, you still need to gather financial account, personal and income info. You will need the W-2 tax form and all income related info. Even if this is nonbinding, you will still be required to present documents. And depending on the lender, the documents will vary. However, you want to present them and it can indeed make a huge difference in this case.

Always try to connect with multiple lenders

The most important aspect with any mortgage is to shop around. And that’s the honest truth, you always want to get in touch with multiple lenders and see what they offer. But at the same time, this is a good idea because it helps you understand your options. Not all lenders will be the same, of course, and that’s why it never hurts to see what you can get from different places.

In fact, that’s the main role of a preapproval. It allows you to see what’s on the market and also ensure that you qualify for a loan. You even learn what loan you qualify for, so there is no misunderstanding or anything. Instead, you have access to all the info, and it certainly helps eliminate a lot of potential issues or challenges.

Conclusion

It always helps to go through pre-approval, because it shows the lender is willing to help you with your mortgage. And even if it’s nonbinding, that preapproval document from the lender is more than enough for real estate agents to close the deal, and ensures the seller that you can actively cover that loan in the first place. Even if mortgage preapproval seems like a challenging process, that’s not the case. Instead, it’s actually quite simple and it might help you improve the chances of getting the home you want, especially since you know what kind of mortgage you can get!