What does pre-approval for a mortgage mean?
Getting pre-approved for a mortgage entails the bank or mortgage lender reviewing a borrower's credit standing in order to determine if he or she qualifies to borrow. Homebuyers 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?
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%.
Credit score report
Before getting pre-approved, NASB 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, NASB divides 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 2 years needs to be verified. There might be other income or asset paperwork needed depending on your circumstance. A NASB 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.