Once you understand the difference between pre-qualification and pre-approval, you may be wondering how to get pre-approved for a mortgage. Here's what you need to know.
Getting Pre-Approved: What Documents Do I Need?
To get pre-approved for a mortgage, you will need to gather several documents, including:
Proof of income: This can include pay stubs, W-2 forms, and tax returns.
Asset documentation: This includes bank statements, investment account statements, and other financial statements.
Employment verification: Lenders will typically ask for proof of employment, such as a letter from your employer or recent pay stubs.
Credit report: Your lender will pull your credit report to review your credit score and credit history.
A good lender will guide you through the process and make sure you have everything you need. But by having these documents ready and organized, you can speed up the pre-approval process and increase your chances of being approved for a mortgage.
Once you’ve gathered all the documentation, to qualify for pre-approval, there are a few requirements. You must:
1. Meet the required debt-to-income ratio; typically, 36% or less. You can calculate it here.
A Debt-to-income ratio (DTI) is a financial metric that compares the amount of debt you have to your overall income.
To calculate your DTI, you add up all of your monthly debt payments (such as credit card bills, car payments, and student loan payments) and divide that total by your gross monthly income (i.e. your income before taxes and other deductions). The resulting number is your DTI.
Here’s an example: You pay $1,500 a month for your rent or mortgage, $200 for your car loan, $100 in student loans and $200 in credit card payments bringing your total monthly debt to $2000. Your gross monthly income is $7000. Your debt-to-income ratio is 2,000/7,000, or 28.5%
2. Meet the credit score requirements of the lender which can vary.
3. Meet the required housing expense ratio; typically, 28% or less.
The housing expense ratio is used to determine how much of your monthly income is being spent on housing expenses, such as your mortgage, property taxes, and insurance. Here’s some more info if you want to learn more.
To calculate your housing expense ratio, your lender will divide your monthly housing expenses by your monthly gross income.
So, if you're ready to dive into homeownership, get pre-approved for a mortgage. By understanding the difference between pre-qualification and pre-approval and having your documents ready, you'll be well on your way to snagging your perfect home. Good luck!
We’ll be sharing more on how to shop for lenders and compare interest rates, how long it takes to get pre-approval, how long the pre-approval lasts, and more on credit scores in later blog posts. Until then, remember to #stayChoosi
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