Pre-approval for a mortgage is the biggest problem for independent contractors. It’s hard to shop for things that we can’t afford. So, in this condition, mortgage pre-approval helps you to shop smarter by taking solid offers. Getting pre-approval for a mortgage is a crucial step in the home buying process. That is why it is absolutely important to know the steps in getting a mortgage. Fortunately, the whole process is quick and straightforward. Still, it would help if you have a complete guide to know everything from scratch. So, let’s start with the basics:
What is pre-approval for a mortgage? Pre-approval vs. pre-qualification:
In simple words, the pre-approval for a mortgage is a document that tells how much money a lender is willing to give. But the record remains valid in the following conditions:
- If the house meets specific criteria
- Apart from this, if your financial situation doesn’t change instantly
- The pre-approval for a mortgage also depends on your income, debts, credit score, and how much money you have in investment and bank accounts.
In addition, the lender does the complete search to estimate your financial conditions. Later, if you qualify, then the lender approves a certain amount as a mortgage.
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How long does it take?
There is a difference between both of the terms pre-approval and pre-qualification. For instance, you don’t need to prove any document, income, or employment history in pre-qualifying a mortgage. So, it assumes that all things are correct, and you can move further. But in pre-approval, you can’t move ahead without proof of income, investment, and employment record. So, if you want to take approval, then it takes 24hrs-10 days. But if you are in a hurry, then get information about the lender that you are considering.
The process to follow:
It’s pretty exciting if you are applying for the pre-approval. But the time frame depends on the complexity of your case. In general, there are the following steps that you need to take:
- Understand the type of mortgage and terms of the loan
- Get the property information and explain the purpose of the loan
- Present borrower information
- Employment information
- Monthly details of the housing expenses
- Give details of the transactions, assets, and liabilities
In the end, you can present a declaration in case of any bankruptcy, foreclosure, and lawsuits. You will also tell whether the aim is to use the property as a secondary or primary residence.
What do you require to get pre-approval for a mortgage?
In simple terms, pre-approval is a test for your financial stability. Before approving, the lender investigates many factors. Here are key things that determine the approval or rejection of the document.
| Credit history | Credit score | Debt to income ratio |
| Employment ratio | Income | Assets, investments, and liabilities |
So, in this physical exam, you will have to sort out the above things. The lenders investigate all aspects of your life to ensure that you can pay back the debt. Now let’s’ break down the detail of these things:
Verification of identification:
First thing first, you need to prove your identification. So, while applying for the loan, you need to show any government document that proves your identification. Here are the documents that can work in this regard:
- Driving license
- Social security card
- Any individual tax identification number
- Passport
- Any ID card that is issued by the state or federal government
By checking your documents, the lender ensures to keep the process fraud-free. So, before applying for the loan, you will have to prove your identity.
Proof of income:
If you want pre-approval for the mortgage, it’s mandatory to prove income from the past two years. Apart from this, you need to verify the source from where you are receiving payment. However, in this regard, you can present an income report generated by paystub maker that entails your organization name and other details. But if the source of income is something else, then the chart contains all relevant details:
| Salaried employees | Freelancers & independent contractors | Landlords & investors |
| W-2 form | Business & personal tax returns | Rent of any property |
| Paystub | Business license | A current lease agreement that shows the rent amount |
| Recent bank statement | IRS form that will allow accessing tax records | |
| Personal tax returns | Balance sheet | |
| Paystub if income includes bonuses or overtime | P&L statement | |
| Statement of asset accounts |
If all your documents are original and meet the lender’s requirement, then you are ready to get pre-approval for a mortgage.
Credit check:
After providing the documents, the next step is to check the credit score and history. It’s an excellent option to check the credit report before applying for the pre-approval because slight errors can ruin your case. Pay attention to credit score because pre-approval for a mortgage also depends on this. Here is the range of good credit scores for applying for a home mortgage:
| Loan type | Min. FICO score |
| Conventional | 620 |
| FHA loan with 3.5% down payment | 580 |
| FHA loan with 10% down payment | Min. score of 580 |
| VA | 580 |
Different factors come together to form a credit score. So, if you want to improve points, then pay serious attention to things like payment history, length of credit history, and a few other factors.
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Present statement in case of debt:
If you have any debt, then you will have to present a debt to income ratio report. The DTI report helps to determine whether you qualify for the mortgage or not. But it would help if you remember that the DTI ratio requirement is different for all lenders. In general, there is the following DTI ratio:
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- In conventional front-end, DTI ratio is around 36%
- But the traditional back-end DTI ratio is 45%
Apart from this, if you have outstanding debts, you will have to present a statement for auto, student, and credit card statements.
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Asset statement:
It is another important factor that will decide the future of pre-approval for a mortgage. The main aim of the present asset report is to prove that you have enough money to make a down payment, cash reserve, etc. So, before applying for approval, the lender will investigate bank statements and retirement & brokerage accounts. You need to present two recent reports that are proving your point. More Information Visit this site: f95zone
Other vital documents:
Apart from the above papers, here is the list of other documents you need to present now. So, the lender might want to see:
| Rent history | Documents if you are paying alimony or child support | Bankruptcy reports |
| Gift letters | Employment verification | Credit card report |
But if you cannot understand the requirements, then it’s a good idea to get the help of any consultant firm. The consultant helps to gather paperwork and get an appointment for pre-approval. So, because of professional service, there are bright chances of getting approval. For more information visit this site: f95zone
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