Step 2 - Get Preapproved for a Mortgage

February 2, 2024

Step 2 - Get Preapproved for a Mortgage

Get Preapproved for a Mortgage

Once you've selected a Realtor to guide you through the most significant financial transaction of your life, the next step in the home-buying process is to obtain pre-approval from a mortgage lender. It is best to obtain a mortgage pre-approval before you begin house hunting because it will be needed to make any offers. Besides that, it's crucial to have a clear understanding of your comfortable budget including your monthly payments, qualifying interest rate, and anticipated monthly taxes. 

Partnering with a reputable mortgage lender is a critical aspect of ensuring a seamless transaction. Collaborating with an unreliable mortgage lender can turn the process into a nightmare for everyone involved and potentially jeopardize the timely or successful closing of your purchase. Additionally, selecting the wrong lender could lead to years of regret if you end up with a higher interest rate than necessary, especially if you had not explored loan options from different lenders. Furthermore, you may miss out on your ideal property due to a disorganized lender who fails to secure full approval during underwriting. This underscores the importance of working with a top-tier mortgage lender. Let us know if you would like to speak with one of our recommended lenders.

Documents Needed for a Mortgage Pre-Approval

Keep in mind every lender may have slightly different requirements and need more or less documentation than what you see here. In general, expect to provide the following documents in order to get an underwritten mortgage pre-approval:

  • A completed 1003 (mortgage) application. You can ask the lender for their application link and/or visit their website. Try to avoid applying on the lender’s general website. It will often direct you to a non-local office.  
  • The two most recent consecutive months (or a quarterly statement) of any asset information listed on the application. The lender needs checking, savings, 401k, mutual funds, individual stock accounts, IRA’s, brokerage accounts, etc…..
  • Past two consecutive pay stubs if you are a W2 employee
  • Past two year’s worth of W2s (ie. 2023 and 2022 W2)
  • Past two year’s worth of US Tax Returns (ie. 2023 and 2022 Federal Tax Returns) - all pages and please sign the signature page(s)
  • Past two year's worth of Corporate Tax Returns (if self-employed and you own over 25% of the company) - all pages and please sign the signature page(s)

The Preapproval Letter

Typically, upon submitting the required items to your lender, you can expect to receive a pre-approval letter within 2-3 business days. The lender may request additional documentation, not to be difficult, but due to the stricter underwriting standards implemented after the housing market downturn. It's important to note that today, more documentation is necessary compared to a decade ago. In addition to obtaining a pre-approval letter indicating the affordable purchase amount, it's advisable to ask your lender to outline the resulting monthly mortgage payment, including PMI, taxes, and insurance. This allows you to ensure that you are comfortable with the anticipated monthly housing expenses outlined in the pre-approval letter. Once you've obtained your pre-approval letter, kindly forward it to us for your file, ensuring that we have it ready for submitting an offer when the time comes.

Down Payment Assistance/Home Buying Grants

Not all lenders are familiar with these programs but it doesn’t hurt to ask. The grants facilitated by the state have approved lenders. And you have some lenders who have their in-house programs available. Lastly, you have county/city programs. The county/city grants can be used with any lender. Their income requirements are a lot more stringent and they require you to apply directly with the city or county while the state programs are processed through the lender.

Your Loan Estimate and Closing Costs

Mortgage lenders are mandated to furnish you with a Loan Estimate (LE) within 3 days of receiving your mortgage application. The LE offers an estimation of the closing costs in addition to your down payment, detailing the specific fees charged by the mortgage lender. It's essential to have a clear understanding of these fees. Typically, we estimate closing costs to be around 4-6% of the property's purchase price. 

Shopping for the Best Mortgage Rate

Given that every lender applies different fees and interest rates, it's essential to consider shopping your loan with at least two lenders, in my opinion. We advise coordinating with the lenders to pull your credit on the same day. This is because each lender needs to access your credit report to provide an accurate pre-approval letter. Having your credit pulled by multiple lenders on the same day or within a day of each other will have a significantly lesser impact on your credit compared to having it pulled by different lenders weeks apart. Additionally, when comparing interest rates, it's important to ensure that you are comparing rates from lenders on the same day, as rates can vary even within a day. Therefore, comparing interest rates on different days is akin to comparing apples to oranges.

Questions about the preapproval process? Just call us at 609-948-4306 or email us.

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