If you’re planning to buy a home, getting pre-approved for a mortgage should be your first step. A pre-approval gives you an idea of how much money you can borrow and helps you set realistic expectations for your home search.
Here’s a pre-approval checklist to help you navigate the process.
Check Your Credit Score
Your credit score is one of the most important factors in getting pre-approved for a mortgage. Lenders use it to assess your risk as a borrower. A good credit score (typically 680 or higher) can help you qualify for a lower interest rate, while a lower score may result in a higher interest rate or even a loan denial. Check your credit report for errors and address any issues before applying for pre-approval.
Gather Financial Documents
Lenders will want to see proof of income and assets to determine your ability to repay the loan. This includes:
– Pay stubs for the past month
– W-2 forms for the past two years
– Tax returns for the past two years
– Bank statements for the past two to three months
– Investment account statements
If you’re self-employed, you may need to provide additional documentation, such as profit and loss statements and business tax returns.
Calculate Your Debt-to-Income Ratio
Your debt-to-income ratio (DTI) compares your monthly debt payments to your monthly income. Lenders use this to determine how much you can afford to borrow. To calculate your DTI, add up your monthly debt payments (such as credit card payments, car loans, and student loans) and divide by your gross monthly income. Most lenders prefer a DTI below 43%.
Get Pre-Approved by a Lender
Once you have your financial documents in order, it’s time to find a lender and get pre-approved. You can apply online, over the phone, or in person. The lender will review your application and financial documents and may ask for additional information. If approved, you’ll receive a pre-approval letter stating the maximum loan amount you qualify for.
Shop for Homes
With your pre-approval letter in hand, you can start shopping for homes within your price range. Keep in mind that your pre-approval is based on your financial situation at the time of application. If your financial situation changes (such as losing your job or taking on additional debt), your pre-approval may no longer be valid.
Close on Your Mortgage
Once you’ve found a home and your offer is accepted, you’ll need to complete the mortgage process. This includes submitting additional documentation, such as a purchase agreement and home appraisal, and finalizing the loan terms. After everything is approved, you’ll sign the loan documents and pay closing costs. Congratulations, you’re now a homeowner!
Getting pre-approved for a mortgage can be a complex process, but it’s an important step in buying a home. By following this pre-approval checklist, you’ll be on your way to finding your dream home.
Ready to start your home search? Contact me today at https://daniellowela.com/ to schedule a consultation and get expert guidance through the pre-approval and home-buying process. Let’s work together to find your dream home!