What You'll Need To Get Pre-Approved For a Mortgage

Homeownership has been branded as part of the “American Dream” for decades. Yet, this dream quickly feels like a nightmare for lots of first-time home buyers (or maybe it’s been a decade or three) that don’t know what to expect. It seems like we should cover this part in school or something, but as far as we can tell, it still hasn’t made the list (though, for whatever reason, trigonometry did).

The good news is, getting pre-approved to buy a home is actually very simple! We’re going to de-mystify the whole process for you right now, so you’ll feel empowered to make an informed financial decision. Most nightmares fade with the rising sun, so let’s shed some much-needed light on this tricky subject!

Make Sure You Know What You Really Want

Everything with a pre-approval is based on what you want as a homeowner, so the more specific you can be, the more helpful you’ll find your lender. First, think about your own daily life and how your current budget works. Now, picture a mortgage payment in place of your current rent payment, and imagine how big can you grow that number before it feels uncomfortable. For example, if you’re thinking, “Wait, anything more than $1,200 per month is not for me,” that’s great! Write that down and keep it ready. It’ll serve as a guidepost when talking to your loan officer.

Secondly, think about where you want to live. Your future school district will have a direct impact on how much you have to pay in property taxes, and property taxes are one of the traditional pieces of a mortgage payment. The tax rate (called the “millage rate”) will influence how much your lender can technically pre-approve you for, since one school district might cost the equivalent of $500 per month in taxes, while another is more like $200 per month. This can make or break a pre-approval, so be upfront and tell your lender what areas are important to you.

Thirdly, decide what kind of home you want. All pre-approvals are not created equal! The easiest kind of home to get pre-approved for is a traditionally stick-built single-family home. They usually come with the lowest required down payments and the most relaxed underwriting guidelines. On the flip side, an attached condominium is a bit trickier to qualify for. The down payment on a condo is usually bigger, and there are several features unique to condo living that the underwriter may be picky about. Tell your loan officer if you’re interested in duplexes, manufactured homes, or townhouses (which are different from condos!), because these all have different qualifications and will impact what your lender can do for you.

Talk To An Expert

Now that you know what you want, it’s time to talk to your loan officer. This is the best part, honestly, because the main goal of your loan officer is to get you into the home that you want! There are three key facts about yourself that your loan officer needs to know to tell you honestly what you can qualify for.

First thing’s first: your credit score. Credit is king, 100%. Without this, there is no mortgage at all. Think of your credit score as your motor, and the mortgage is your car. Whether it’s a quiet electric motor, a zippy four cylinder or a screaming V12 right out of a Lamborghini, if you don’t have a credit score (or don’t want to tell us about it), there’s no driving this mortgage. Tell your loan officer upfront if you’ve had any “engine trouble” over the years, like a bankruptcy, an unresolved judgement, or a foreclosure. Remember, the more we know, the more we can help.

Once you’ve told your loan officer about your credit history and where you think your credit is today, it’s time to talk about savings. Your loan officer will often refer to this as your “assets”. Keep in mind, assets in the mortgage world are a bit different from what we might mean in everyday life. Examples of assets we can use to qualify are checking and savings accounts, stock portfolios, retirement accounts, and the cash value of life insurance. Ineligible assets are things like cars, jewelry, art, coins, or physical dollar bills. Assets must be on paper in a verifiable financial institution, and they can’t just appear there overnight. If you don’t have the money you want to use to qualify sitting in some sort of account for at least 60 days, the chances your lender can use them to help you buy a house are slim to none. Tell your loan officer, too, if you’re planning on selling any physical items, getting a gift from family, or applying for down payment assistance.

Finally, we get to the part most people think of first when they go to qualify for a home: your income. Yes, believe it or not, this is actually the least important of the three things! Don’t misunderstand – without verifiable income, it’s next to impossible to get a loan of any kind. However, credit and assets on paper carry more weight in the mortgage world. The main thing about your income that your lender needs to know is “will it continue in the same way for the foreseeable future?”. If you are an employee of a company, you need to be able to tell your loan officer where you work, how long you’ve been there, what you do, how you’re paid (hourly, salary, commission, etc.), how often, and what the before tax number is (lenders use the gross, not the take-home pay). Self-employed borrowers are welcome! Just be sure to have access to your last two years of tax returns so your loan officer can figure out your taxable income. If you’re retired or on social security, you could still qualify! Tell your loan officer how much you receive before taxes and be prepared to show your social security benefit award letter or your 1099 for your pension.

Start the Pre-Approval Process

Once your loan officer knows about your monthly budget, desired living area, preferred home type, credit score, assets, and income, we will have enough information to show you realistically what you can expect. Give your loan officer permission to pull credit, and they will be able to price out a loan option based on your goals and give you everything you need to make an informed decision about your home financing. If you’re thinking of shopping around, that’s perfectly fine. While we’re confident we can beat pretty much anyone’s pricing, you actually have the right to shop with as many lenders as you want within 30 days and there will be no further impact against your credit score beyond that first pull. Don’t feel like you have to take the first deal you talk about, either. Talk with your loan officer about how you’re feeling and ask as many questions as you can think of. Remember, we want to make you happy, so tell us if you want to look at different scenarios for the rate, term, cost, payment, or even housing type.

Based on what you want and what you should qualify for, your loan officer will tell you exactly what documents they need to see from you to give you a pre-approval letter. Be sure to ask for clarity on the documents needed if you’re unsure (we’d rather you ask than send the wrong document and we have to trouble you to send something else). Your pre-approval letter is typically valid for 90 days, and your credit report is valid for 120 days. Ideally, you would find your home within three months, and we would close before the credit report expires. Don’t worry if you run out of time, though. Just call your loan officer anytime to renew your pre-approval letter!

That’s pretty much it! Remember to focus on what you want and what feels comfortable to you financially. Tell your loan officer about your dreams and goals for your new home and be specific. Bring up anything that you think might cause an issue with your credit, assets, or income so we can tell you how to get around it (chances are, we have a solution up our sleeve!). If you’re ever unsure about what to do next, just reach out to your loan officer! They’ll be more than happy to point you in the right direction. Stay tuned for more articles about home financing so you can mortgage like a pro!