Educational institutes, jobs, and loans have one thing in common. They have pre approval for a mortgage loan criteria before confirming loans or a position. It’s important to meet the pre-approval criteria to achieve our objective of getting that loan. Therefore, it’s essential to know how to get pre approval for a mortgage loan.
Above all, it’s also important to know what pre approval for a mortgage loan is specifically. Basically, it’s an acknowledgment from a letter signifying the amount of loan you can take after reviewing your financial background. Lenders do financial background checks through our credit card history and credit rating.
Documents for Pre Approval for a Mortgage Loan
Before learning how to get pre approval for a mortgage loan, you must know what documents are needed for mortgage approval. Unlike pre-qualification metrics, which require you to ascertain that you meet the qualification criterion for the loan, a pre-approval letter indicates that you’re a suitable candidate for a loan.
For pre approval for a mortgage loan, you have to get several documents like income proof, employment proof, and a list of your assets and debts. There are several categories of individuals for income and employment proof: those engaged in business and those who have a job. We’ll list the documents needed for each of them below:
- For employees who earn from one source, they’ll need a W-2 form. Specifically, they’ll require two copies of W-2 forms and recent payroll records.
- They’ll have to provide a recent profit and loss statement with two previous records for people who have a personal business. Additionally, they should show form 1099s which report incomes.
- If you depend on real estate income, you’ll have to show proof if you intend to qualify for a mortgage with it.
Regarding assets disclosure, you should list all the bank statements of accounts you intend to use for a mortgage. Likewise, if you have other investment accounts and customer deposits, you should also show their recent balance.
Similarly, you’ll have to show your monthly debt payments, if you have any, to fully calculate your debt-to-income ratio and ability to pay the mortgage. Common monthly debt payments include student loans, insurance payments, and credit card payments.
How to Get a Pre Approval For a Mortgage?
Since you got all the documents and know what a pre-approval is, you should also know how to get pre approval for a mortgage application. Before getting ready to fill up a pre-approval form, you should try your best to improve your credit profile. Besides, three factors can affect your pre-approval of mortgage: credit history, debt-to-income, loan-to-value ratio, and income history.
Now you’ll have to keep a good record of all these metrics to secure the mortgage. You can do so in the following ways:
- A credit score of 620 or more is recommended. Higher scores will enable your chances to qualify for loans. Therefore, you should work on improving your score by reducing credit payments or credit cards.
- Try to calculate your debt-to-income ratio, which shows how much debt is the percentage of your total income. Generally, a 36% or less ratio is recommended and will put you in a good place to secure a loan. Try to reduce your debt payments and increase the ratio.
- Most lenders require you to pay at least a 20% down payment, or you’ll have to purchase private mortgage insurance. If you try to increase the down payment, you’ll be in a good place to secure the mortgage.
- Believe in yourself and contact multiple lenders. If someone rejects you, it isn’t the end of the world; try contacting multiple lenders and increase your chances of getting the loan.
If you’re looking forward to getting a mortgage loan, visit RateChecker to get free customizable quotes. Moreover, the tips mentioned above are some of the best ways which answer the question “How to get pre approval for a mortgage loan.” Therefore, if you successfully want to close a deal with a lender, check out the above tips.