Get Preapproved for a Mortgage in 4 Steps
In a recent blog, we discussed why a mortgage preapproval is important. (If you missed it, read it here: Why Should I Get Preapproved?) Since we’ve already established the why, let’s talk about how you get preapproved.
Get a Free Credit Report to Check Your Credit Score
Before you reach out to a lender, it can be helpful to understand your personal credit score and credit history. Typically, a minimum credit score of 620 is recommended, but a score of 740 or higher will help you get a better mortgage rate. If you find incorrect information on your credit history, be sure to resolve the issue before you apply for preapproval.
Calculate Your Debt-to-Income Ratio
Your debt-to-income (DTI) ratio is the percentage of gross monthly income that is put to your debt payments. There are many online calculators you can use for your personal finances. Lenders tend to prefer a DTI of 36% or less, including the new mortgage payment.
Gather Personal and Financial Information
During the preapproval process, you’ll be required to prove that you have the money to purchase a home. You will need your social security number, current/recent addresses, employment details, bank and investment account information, and proof of income through a W-2 or 1099. Although there are exceptions, lenders prefer two years of continuous employment.
Contact Multiple Lenders
Each lender will provide a different offer for your financial situation. Comparing offers from several lenders will allow you to choose the best rate and fee structure, which can save thousands of dollars on a 15- or 30-year loan. A preapproval does involve a hard inquiry to your credit, which means you will experience a slight hit to your score. However, because you’re only applying for one loan, your credit will only be hit one time.
During the entire home buying process – from preapproval to closing – you should avoid applications for additional credit (i.e., cars, boats) that will affect your DTI.
When you work with HomeSource Realty, we help walk you through every step of the home-buying process as you need us. Call our team today at (828) 944-4429.