If you wish to take a mortgage loan for your asset planning, then you have to follow this article for getting pre-approved.
Mortgage lenders offer pre-approval letters to buyers they believe can repay their loans. However, unlike mortgage pre-qualification, the pre-approval process is a more detailed look into your finances, including running a hard check on your credit.
Your pre-approval letter may include everything from your maximum loan amount to your estimated interest rate. The letter will also have an expiration date for when the terms of the pre-approval letter are valid.
Key Takeaways
- Mortgage pre-approval is a more thorough evaluation of your finances than pre-qualification.
- During the mortgage pre-approval process, a lender will likely conduct a hard credit inquiry and look at documentation such as proof of employment, income tax returns, and assets.
- A mortgage pre-approval is usually valid for around 90 days, but it can also be valid for 30 or 60 days.
- The lender will relay the maximum loan amount the borrower can take out in the mortgage pre-approval letter.
Requirements for Pre-Approval
Mortgage pre-approval requires a buyer to fill out a mortgage application; provide proof of income, employment, and assets; and demonstrate good credit through a hard credit pull.
Proof of Income
Your lender may require proof of income through W-2 statements from the last couple of years.
Proof of Assets
Another document lenders may need for a pre-approval letter is proof of assets, which can be your bank or investment account statements. These statements need to show evidence that you have enough cash to pay for expenses such as, but not limited to, the required down payment and associated closing costs. If you do not have the expected down payment requirement (usually around 20%), your lender may require you to purchase private mortgage insurance (PMI).
Good Credit
Usually, conventional mortgages require you to have a credit score of 620 or higher. However, mortgages insured by the Federal Housing Administration (FHA) and other agencies may allow you to get a loan at a lower credit range. For instance, borrowers with a credit score as low as 500 may be able to take out a mortgage backed by the FHA.3 Lenders get a sense of your credit score by requesting a copy of your credit report, otherwise known as a “hard credit inquiry,” from one of three major credit bureaus.
Employment Verification
To verify your employment during the pre-approval process, a mortgage lender may look at your W-2 forms and seek an official employment verification letter. They may also call your employer to verify your job title, income, and employment status.
Other Documentation
During the pre-qualification process, you may also be required to provide your driver’s license, Social Security number, and consent for the lender to conduct a credit inquiry. If you are self-employed, you may need to provide additional income documentation.