Why You Should Get Pre-Approved for a Mortgage and How to Do It Part 1

Getting pre-approved for a mortgage involves having a lender review your financial information. Pre-approval can help narrow your home search to properties within your budget and assures you to make an offer when you find the right home.

What Is Mortgage Pre-Approval?

A mortgage pre-approval is a statement from a lender that indicates how much of a loan they are prepared to offer you based on your financial situation. This pre-approval is based on a thorough evaluation of your income, assets, debts, and credit score.

The lender will also perform a hard credit inquiry to gain further insight. With a pre-approval in hand, you will have a better idea of how much house you can afford and can start your search with confidence.

4 Steps to Get Mortgage Pre-Approval

Here are four easy steps to follow to get mortgage pre-approval:

1. Find a Mortgage Lender. To secure the best possible terms for your mortgage, it’s a good idea to compare lenders. Take the time to research and investigate different lenders to find the one that offers the lowest rates and fees. You might even consider applying to multiple lenders to understand better how they manage loans, the fees they charge, and their customer service. Remember that you’ll have to go through the pre-approval process multiple times.
2. Gather Your Personal and Financial Documents. If you are self-employed, you will likely need to provide extra evidence to show your income is reliable for a mortgage pre-approval. This could include having an accountant review your business records and verify your profits with customers. It’s important to have all the necessary documentation ready before applying for pre-approval, as you’ll need to share this information with each lender. Your lender can tell you what is required if you are self-employed.
3. Review Your Credit Report. Before applying for a mortgage loan, it’s important to check your credit report for any errors that may affect your application. When applying, lenders will run a hard credit check and consider your credit score to determine if you qualify. The lender will also look at your credit utilization ratio, which is the ratio of outstanding balances to total credit limits. A lower credit utilization ratio increases your chances of getting pre-approved. Generally, a credit score of 620 or higher is required to qualify for a conventional mortgage. The higher the credit score, the better the loan terms and the lower the interest rate you can expect. If your credit score is below 620, certain loan programs, such as an FHA loan, allow for lower credit scores.
4. Get Pre-Approved. When filing for pre-approval, many lenders provide the option to do so in person or online. To decide how much you can afford to pay for a mortgage, lenders often use the 45/50% ratios, meaning that your mortgage payments should not exceed 45 percent of your gross monthly income, and all your debt payments should not exceed 50 percent of your gross monthly income. Depending on your credit and financial information, the lender will determine if you are eligible for pre-approval and for what amount. After completing the assessment, you will receive a pre-approval letter with all the information.

Conclusion

Getting pre-approved for a mortgage is a smart decision for anyone looking to purchase a home. By getting pre-approved, you’ll have a better understanding of how much you can borrow, and you’ll be in a better position to make an offer on a property when you find the one you want. Furthermore, you’ll be able to move quickly and confidently when making an offer.

Stay tuned for Part 2 of this blog to find out what to do after getting a mortgage pre-approval.

Contact Your Mortgage Specialist Today

McGowan Mortgages are your home loan experts dedicated to ensuring your home purchase or refinance experience is top-notch. We have helped thousands of families in Kansas City and throughout Missouri to make their dreams come true. We can’t wait to do the same for you! If you want to get pre-approval for a loan in Kansas, we’d love to help you find the right investment property! Contact us as soon as possible at (816) 631-9687 so that we can help you in the same way!