By Matt Allen
Vice President, Portfolio Lending (NMLS #415037)

How to Get Pre-Approved for a Home Loan

Sep 08, 2022

  • Home Loans

With the competition for purchasing a home in today's market still very high given the low inventory numbers, you need all the advantages you can get. Choosing to get pre-approved for a mortgage loan is one way to gain such an edge. Mortgage loan pre-approval entails the lender reviewing a borrower's credit standing to determine if they qualify for the loan. Home buyers often get pre-approved prior to making an offer on a house, making their offer more likely to be accepted.

What do you need to get pre-approved for a mortgage?

Down payment - A down-payment is the amount of money that a borrower pays for upfront, excluding closing costs.  When combined with the mortgage amount, the down-payment fulfills the total purchase price of the property. Typically, a 20% down-payment is what’s recommended, but not required under most circumstances. Down-payments of 3.5% - 5% qualify you for a mortgage. In some cases - if you are getting a VA loan, for instance - a down-payment is not required.

Example: John buys a house for $100,000 and obtains a loan for $80,000. His down-payment would be $20,000 if he puts down 20%.  Here's a down payment calculator to help you determine whether it's better to put a smaller or larger down payment on a home.

Credit score report - Before getting pre-approved, lenders will need to review your current credit standing. Your credit report details your full credit history, including payments on revolving accounts (i.e.: credit cards) and installment accounts (i.e.: car loans). This report also includes information found from public records including tax liens and judgments.

Good debt-to-income ratio (DTI) - Your debt-to-income ratio is expressed as a percentage. To obtain a borrower’s DTI, lenders will divide your monthly payment obligations by your gross monthly income. The maximum DTI for most loans will be 45%, with a little bit more leniency under certain conditions.

Proof of income and/or assets - You must prove your income with the bank before being approved to buy a home. Typically, your income for the previous two years needs to be verified. There might be other income or asset paperwork needed depending on your circumstances. Your loan officer will give you a complete list of requirements during the pre-approval process.

Why is getting pre-approved important?

Sellers tend to prefer selling their homes to people who have already been pre-approved for a loan, as opposed to someone who has not yet been pre-approved. When comparing offers, the prospective buyer who has already done all of the preliminary work with the bank or mortgage lender is more likely to have his or her offer accepted.

If you would like to be pre-approved for a mortgage, contact one of our experienced loan consultants at 855-465-0753.