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Scrolling through glossy online listings might fuel your dream-home fantasies, but the homebuying process begins in earnest when you contact a lender and get preapproved for a mortgage. Although it’s nonbinding, mortgage preapproval reveals how much a lender is willing to let you borrow and what kind of mortgage you may be eligible to receive. Once this process is complete, the lender will provide you with a preapproval letter.
You can get similar information regarding your estimated borrowing limit by going through pre-qualification, which is an informal process involving self-reported financial data.
Preapproval, on the other hand, is substantiated by financial documentation, which is why a preapproval letter from a lender is meaningful. Pre-qualification can be a helpful way to establish a realistic budget, while a preapproval letter lets real estate agents and home sellers know that you’re able to obtain financing and are ready to buy a home.
Once you’ve tracked down all the necessary information, you’re ready to start researching lenders that may be a good fit. Many of them have a preapproval portal on their websites.
Getting approved for a mortgage loan can be a long and stressful process. However, there are some things you can do to help speed up the process and get a quick mortgage loan approval. With the right preparation and knowledge, you can have an easier time getting approved and be ready to buy your dream home.
Understand What Mortgage Lenders Look For
When applying for a mortgage, lenders will evaluate several factors to determine if you qualify for a loan and how much they are willing to lend you. Here are some of the main criteria lenders consider:
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Credit score – Most lenders require a minimum credit score of 620-650 to qualify for a conventional loan. The higher your scores, the better your chances of approval and lower interest rates.
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Debt-to-income ratio – Lenders look at your total monthly debt payments versus monthly income, They generally approve ratios of 36-43%
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Down payment amount – Most loans require at least 3-5% down. Larger down payments show financial strength.
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Employment history -Stable income from at least 2 years of employment is ideal. Gaps in work history may need explaining.
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Reserves – Lenders want to see you have extra savings to cover mortgage payments for a few months if needed
Knowing these key points will help you prepare an appealing loan application.
Improve Your Credit Score
Your credit scores play a pivotal role in mortgage approval. Taking steps to boost your credit in the months before applying can have a big impact.
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Pay down balances – Lower credit card balances to decrease your credit utilization ratio. Shoot for less than 30%.
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Dispute errors – Fix any mistakes on your credit reports by disputing them. Even small errors can hurt your scores.
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Avoid new inquiries – Limit applying for new credit before your mortgage application to avoid additional hard inquiries.
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Ask for credit limit increases – Higher credit limits with low balances help lower your utilization and raise scores.
With time and diligent credit management, you can raise your scores significantly. Getting above 700 will qualify you for the best rates.
Get Preapproved First
Mortgage preapproval should be one of the first steps when starting your home search. Preapproval involves having a lender fully assess your finances and credit to determine your maximum loan amount.
Going through underwriting early flags any potential issues upfront instead of jeopardizing an offer later. Provide a complete picture of your financial situation with tax returns, paystubs, bank statements and other documentation.
With a preapproval letter in hand, sellers know you’re a serious buyer who won’t have problems getting financing. In competitive markets, it can give your offer an edge.
Choose the Right Loan Program
All mortgages fall into two main categories – conventional and government-backed loans. Conventional loans often have stricter requirements, while government programs like FHA, VA and USDA loans offer more flexible qualification guidelines.
If your finances are borderline, government loans open up more possibilities for quick approval. FHA allows credit scores as low as 580 with a 10% down payment. VA has no minimum score requirement for qualifying veterans. USDA offers 100% financing for low-income borrowers in rural areas.
Know the various loan program options and choose the one that best fits your financial profile. This avoids headaches from applying for a loan you won’t qualify for.
Provide Full Financial Documentation
When applying for a mortgage, you need to fully disclose and document all sources of income. Attempting to hide anything almost guarantees denial. Lenders will verify the employment history, income, assets, and debts listed on your application.
Have the following ready for your loan application:
- Pay stubs covering the last 30 days
- W-2s for the past 2 years
- Federal tax returns for 2 years
- Bank statements showing cash reserves
- Documentation of any supplemental income
Complete documentation allows lenders to quickly process your application and get you to closing faster.
Communicate Openly with Your Lender
Maintaining constant contact with your loan officer facilitates the approval process. Be responsive to any requests they have for additional documents or clarification. Ask questions immediately if you’re unsure about any information they need.
Provide explanations upfront for anything that seems out of the ordinary – gaps in employment, recent large deposits, etc. Don’t wait for lenders to come back with questions about red flags they uncover. Honest communication at the outset can prevent delays.
Avoid Major Purchases
It’s tempting to want to buy appliances, furniture, or a new car when moving into a new home. However, hold off on any large purchases until after closing. Lenders will scrutinize your bank statement transactions and may require documentation on where funds came from.
Unexpected activity can raise questions and require re-verification of your financial details. Keep spending status quo until you have the mortgage locked down.
Be Flexible on Closing Timeline
Rushing through underwriting raises the chances of mistakes and overlooked details that could jeopardize approval. Provide all requested documents as quickly as possible, but don’t pressure lenders to speed up the process faster than they’re comfortable with.
Closing will take as long as required to fully confirm and validate your loan application. If early closing is essential, allow extra time in your purchase agreement and be prepared to extend the rate lock period for your loan.
Turn to Mortgage Brokers If Needed
Mortgage brokers have relationships with multiple lenders and can help you find the right loan program if you don’t qualify through regular channels. They also handle communication and documentation between you and lenders.
Brokers are very knowledgeable on the intricacies of various loan programs. They can guide you on the optimal way to present your financial situation to get fast approval. Their expertise comes at the cost of higher upfront fees.
Be Patient
As eager as you may be to close quickly on your new home, mortgage approval cannot be rushed. Attempting to speed up the process only leads to mistakes and denials down the line. Be organized and prepared with your paperwork, but allow your lender sufficient time to thoroughly verify everything.
Avoid putting pressure on underwriters to skip steps, even if you have a pending home purchase. Patience and working cooperatively with your lender is key to getting quick mortgage approval.
Consider Adjusting Your Home Price
If you’re being denied for loans because of tight debt-to-income ratios or low credit scores, reconsider the price range you’re looking at for homes. More affordable properties that require a smaller loan may offer better chances for quick approval.
While no one wants to compromise on their dream home, keep in mind that you can always look to upgrade several years later once you build more equity and improve your financial profile. Don’t let an unrealistic budget sink your homeownership hopes entirely.
Summary
The keys to quick mortgage approval are improving your credit, extensive preparation, choosing the right loan program, and working closely with your lender. Rushing the process won’t help, but giving your lender what they need to verify your finances will. Patience and perseverance will help you achieve your dream of homeownership.
Key takeaways
- You’ll need to gather documentation to get preapproved, including Social Security numbers, proof of income, banking information and tax forms. (Use a preapproval documentation checklist.)
- You’ll want to get your financial ducks in a row before applying. This can include disputing incorrect data on your credit report or paying off some existing debts to signal to lenders that you can afford a mortgage.
- Pre-qualification is a more casual and informal way to gauge your readiness to buy a home, while preapproval is a more involved process that is best suited to borrowers who are ready and motivated to buy.
- Your preapproval will likely expire in three months or less.
5 steps to get preapproved for a home loan
- Get your free credit score. It’s helpful to know where you stand before reaching out to a lender. A credit score of at least 620 is recommended to qualify for a mortgage, and a higher one will qualify you for better rates. Generally, a credit score of 740 or above will enable you to qualify for the best mortgage rates. You’ll want to get your score as high as possible before embarking on the homebuying journey, but you can also focus on lenders that specialize in working with borrowers with low scores if needed.
- Check your credit history. Request copies of your credit reports, and dispute any errors. If you find delinquent accounts, work with creditors to resolve the issues before applying.
- Calculate your debt-to-income ratio. Your debt-to-income ratio, or DTI, is the percentage of gross monthly income that goes toward debt payments, including credit cards, student loans and car loans. NerdWallet’s debt-to-income ratio calculator can help you estimate your DTI based on current debts and a prospective mortgage. Lenders prefer borrowers with a DTI of 36% or below, including the prospective mortgage payment, though it can be higher in some cases. If your monthly debts are prohibitively high, you may need to address this by refinancing, getting on an income-based repayment plan or paying down your debt more aggressively before you take on a mortgage.
- Gather income, financial account and personal information. That includes Social Security numbers, current addresses and employment details for you and your co-borrower if you have one. You’ll also need bank and investment account information and proof of income. Documents you’ll need to get a mortgage preapproval letter include your W-2 tax form and 1099s if you have additional income sources and pay stubs. Lenders prefer two years of continuous employment, but there are exceptions. Self-employed applicants will likely have to provide two years of income tax returns. If your down payment will be coming from a gift or the sale of an asset, you’ll need a paper trail to prove it.
- Contact more than one lender. Comparing offers from multiple lenders can help you compare rates and fees, and save you thousands of dollars over a 30-year mortgage. Because preapproval involves a hard inquiry, your credit score may experience a slight (but temporary) hit. However, because all of your applications pertain to one loan, you’ll get dinged only one time, rather than getting penalized for every lender that grants you preapproval. According to the Consumer Financial Protection Bureau (CFPB), your preapproval applications will count as only one inquiry if they are all submitted within a 45-day window.
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Get PreApproved for a Home Loan – 2024 Tips & Tricks
FAQ
How fast can you get approved for a mortgage?
What is the easiest home loan to get approved for?
What is the quickest a mortgage can go through?
Can I get approved for a mortgage in a day?
What is a mortgage pre-approval?
A mortgage pre-approval is documentation that shows you’re a good candidate for receiving a home loan. To get pre-approved, you’ll complete an application and the lender will review your financial information, including pulling your credit.
Does a mortgage pre-approval lock you into using the same lender?
Getting a mortgage pre-approval from a lender does not lock you into using them to finance your home. Once you are pre-approved for a mortgage, the lender will provide you with a pre-approval letter that acts as a conditional commitment to loan you a specific amount of money for a home purchase.
Does a mortgage preapproval require a credit check?
A mortgage preapproval requires a hard credit check so your lender can see your credit score and other debt. These might include bank statements and pay stubs. Typically, you can apply for both a mortgage preapproval and a mortgage prequalification online. A preapproval is helpful when you’re shopping for a home.
Can I get a mortgage preapproval online?
Most mortgage lenders offer an online mortgage preapproval process. With a final loan approval, but it’s important to provide accurate information during the process to avoid delays or potential loan denials. Leaving out or providing incorrect information could cause issues later in the mortgage process.