So you decided that you want to purchase a new home! I am sure you’ve read it all over the internet that your very first step is to get preapproved for a mortgage. Isn’t that right? WRONG! Going online and getting preapproved for a mortgage loan is not your initial step in the mortgage loan preapproval process. Doing your own due diligence prior to getting into the mortgage preapproval process online to find out how much you can afford — that is if you can afford any house — is your first step. Confused? Don’t worry. I will explain!
For starters, you need to know the difference between getting prequalified for a mortgage and getting preapproved for a mortgage. Bottom line, the getting prequalified step comes before getting preapproved. Getting prequalified for a mortgage is simply knowing how much house you can afford, and getting preapproved is finding the right lender with the appropriate mortgage program that will best suite your financial situation to get you into an affordable home.
If you haven’t read What is the difference between mortgage pre-qualification and mortgage pre-approval I recommend you do so before reading this article! If you’re already pre-qualified, then go on…
So getting back to answering the question How to Get PreApproved for a Mortgage?
1. YOUR CREDIT
Your credit’s FICO score is your #1 priority. The first question a licensed mortgage professional will ask when acquiring about a new home purchase or mortgage refinance is “What’s your FICO score?” Why? Because your credit strength plays a very important role in the mortgage prequalification process, that is, the length of your credit history, your payment history, outstanding debt, collections, credit inquiries, etc. A credit score of 720+ will get you easily qualified for the best mortgage programs and the lowest mortgage interest rates available.
That said, in order to improve your credit and maintain good credit ratings here are a few things you need to do:
- First, obtain a copy of your credit report to know your 3 FICO scores by visiting: https://www.annualcreditreport.com.
- Second, review your credit and pay any collections you may have. If you have never seen a credit report before, take some time to review it or ask a trusted family member or a friend who has some experience in that field. It’s actually very easy to understand it once you spend some time reading your credit report.
- Third, look at your credit lines reported on your credit and make sure nothing looks out of the ordinary. For example, if you have 3 active credit cards and a current auto loan, then there should be 4 open credit lines on your credit report. If anything looks suspicious you will need to contact each major credit bureau and dispute or correct any errors or unrecognized items on your report. Visit these sites to learn more about disputing errors on your credit:
- Finally, pay down your credit cards debt especially credits with high interest rates. If you don’t have extra funds to pay off all of your reported debts, make sure you pay at least 50% of your credit limit on each and every credit card you have.
These four steps will help improve your credit history and raise your credit score which will get you prequalified for a better mortgage program and lower interest rate.
Now look at every open credit line and add all required monthly payments. This is your total monthly debt obligations your lender will be using to get you prequalified for a mortgage.
2. YOUR INCOME
The more money you make the more house you will qualify for. If you’re employed, you simply take your total income from your paycheck, however, if you are self-employed you will need to speak to your CPA to figure out how much you make. Know how much your monthly or annual income is before trying to get prequalified for a mortgage in Orange County, California. Now that you know your total monthly debt obligations and your total monthly income, head over to our home affordability calculator to get a general idea of how much you can borrow to purchase a home. This will give you the maximum loan amount you’d qualify for.
If you need to buy a bigger house than what you qualify for, then you will need a larger income. That said, you have the option of adding a co-borrower on the loan. This will increase your total monthly income, however the co-borrower’s credit scores and overall debts will also be considered in the prequalification process. Lenders typically use the lowest middle score of all borrowers on the loan. So make sure you know the credit history and over all debts of the family member or spouse you’re adding to the loan before proceeding.
Keep in mind, your debt to income (DTI) ratio must be 36 percent or less; 43 percent is the maximum ratio allowed, but some lenders may allow up to 50% DTI. If your DTI is above 43% then you need higher income or you need to use your assets to pay down debts.
3. YOUR ASSETS
This is a very important factor in the mortgage pre-qualification process. You must have enough assets to qualify. Your assets are used to pay down debts to qualify, pay for down payment, closing costs, reserves for moving etc. That said, you must know how much you can put down for a house while have enough for closing costs and moving expenses. You also need to have a minimum of 3–6 month reserves. That is, three to six times what your anticipated total mortgage monthly payment is. To determine your 6 months reserves we need to find out your estimated mortgage monthly payment. Visit the Monthly Mortgage Payment Calculator and plug in the maximum loan amount obtained using the calculator provided in step #2 to find out your mortgage payment. Multiply the payment by 6 and that would be a rough estimate of your six months reserves you need to have after closing the loan.
Calculate your total liquid assets you have in your bank accounts such as Checkings, Savings, IRA, 401K and more.
Now, subtract your total six months reserves out of your total liquid assets. This will be your total monies you can afford for a house including down payment and all fees associated with the close of the loan such as per diem interest and closing costs.
Please note that some mortgage programs allow gift monies to be used towards down payment and closing costs. Some government programs even assist in down payment such as FHA and VA loans. Speak to one of our licensed mortgage professionals to assist you with such programs.
Per diem interest is simply the amount of interest due for one day that is your mortgage loan is outstanding. For example, the per diem interest on a 30-year, $100,000, 8% mortgage that compounds monthly (based on a 360-day year) would be: ((.08/12) x $100,000) / 30 days = $22.22.
4. YOUR CLOSING COSTS
Every lender’s closing costs are different. That’s why we have created a separate page just to discuss mortgage closing costs. Please visit mortgage closing costs page to learn more about closing costs. For now, you just need to know that you’re closing costs are about 2% of your purchase price.
5. YOUR DOWNPAYMENT & BUYING PRICE
By now it’s obvious that the more you put down for a house the larger mortgage you’d qualify for as your monthly mortgage payment would decrease. However, you need to determine an amount that you’re comfortable with for a house down payment and have enough assets for other fees associated with the loan. You always want to make sure you have at least 6 months’ worth of monthly mortgage payments after your loan is closed and have moved into your new house.
That said, take the maximum loan amount obtained using the calculator provided in step #2 and add the total amount of liquid assets obtained in step #3 after subtracting the total dollar amount for closing costs. This will give you a general idea of how much home you would prequalify for.
Now, when you read anything about home affordability, you’ll know what that really means! If you think you would prequalify to buy a home, you will then need to get preapproved.
6. AFFORDABILITY & PREAPPROVAL
Determine how much home you can afford before you start looking so that you can buy the right home & close your loan faster!
When you’re shopping for a new home, typically a bank doesn’t commit to give you a loan until you execute an agreement to buy the house. A mortgage loan preapproval online can help you with the final mortgage application and the house hunting process as it gives you and the seller confidence that you can get approved for the home you’re putting an offer on. Sellers are more likely to accept offers from buyers who are pre-approved — not just prequalified — because it demonstrates their ability to finance the mortgage loan. This gives the seller confidence that the mortgage transaction will close on time.
Save time & money by searching for the right home after knowing how much you can spend on a house. The benefits of getting preapproved for a mortgage online are that you will know how much home you can afford before you start your search process. It’s wise to qualify online and figure out what payment you’re comfortable with. This will save you time and money finding the right home for you and your family and avoid any unpleasant surprises during the loan process.
When you’re already prequalified, seller is more likely to accept your offer than other competing non-preapproved buyers! Also a mortgage home loan preapproval letter from Arbor Financial is your first-class ticket to a smoother home loan process and a faster closing, that is, after you have done your due diligence of getting preapproved for a mortgage. Get the peace of mind of knowing your home will close with no problems before making an offer on a home by getting preapproved for a mortgage home loan online.
So How Does the “Get PreApproved for a Mortgage” Online thing really Works?
Getting pre-approved for a mortgage online vs. online applications
Finding out how much you may be able to spend on your next home is obviously a smart decision and a necessary step. We already discussed how a mortgage prequalification process can assess whether your debt-to-income ratio (DTI) fits the guidelines of your proposed mortgage home loan. It also determines how much you can borrow so you’re shopping for the right house.
Remember, how much you can borrow to buy a new home is often more than how much you may be able to afford. Let me iterate, you must be able to qualify to buy a new home and still have money left over for other important needs in your life after moving into your new home.
So, getting preapproved for a mortgage online doesn’t require a commitment from you or Arbor Financial. This isn’t a full online application as your credit isn’t pulled. For a full online application please Apply Online instead! You should be aware that when applying for a mortgage online, your credit history, income and down-payment will affect your ability to qualify. Good rule of thumb for buying a house is your overall household income must be double your overall household debt expenses. That’s the 50% maximum DTI explained above. If you have experienced some hardship in the past and you’re concerned about your credit history, talk to one of our licensed mortgage agents now to find out what options might be available to you and to get the best advice on how you’ll be able to improve your credit.
Once prequalified, you will receive a letter stating how much you may be able to borrow, based on the information you provided Arbor Financial. You can provide such prequalification letter to your licensed real estate agent demonstrating that you’re a serious and qualified homebuyer. Keep in mind such “Get PreApproved for a Mortgage Online” letter will work for FHA loans, VA loans, and other programs. Our online preapproval requests are validated against federal home buying guidelines and programs such as FHA loans, VA loans, and others.
Ready to Get Started?
There are plenty of websites that will offer to pre-approve you. Most of them don’t offer an instant mortgage preapproval letter online. Others aren’t secure! Heck, lots of them just ask for your contact information but don’t bring you any value! The easiest and most convenient way is to Get PreApproved for a Mortgage Online with Arbor Financial Group. It is easy, fast and secure! Most importantly, at Arbor- you’ll receive an instant mortgage preapproval decision online.
How can you speed up the mortgage pre-approval process?
Get Organized! Make sure your documents are in order and are digital
Before you apply for a mortgage loan in Orange County, California, make sure that you have all the documents that will be required.
- Most recent 2 years personal federal tax returns. All pages and all schedules. **
- IF you own 25% or more of any LLC, S-Corp, Partnership etc we will need the most recent 2 years business returns (1120s, 1065s, etc) & K-1s for these entities
- Most recent 2 years W-2s
- Most recent paystubs to cover a 30 day period
- Current Driver’s licenses
- 2 months banks statements for any funds that will be used for closing.
- A complete ARBOR Mortgage Pre-Approval Loan Worksheet
- Current credit report (we can provide for you)
A best practice is to gather all the information above and save it in a PDF file format. This will save you time down the road and make things easier to approve your loan.
Download Pre-Approval Process Do’s & Dont’s Checklist
During the mortgage loan pre-approval process, it is extremely important that Nothing Changes in your financial world. We recommend you download the following do’s & dont’s of getting a mortgage home loan!
How to get pre-approved for a mortgage home loan online
Originally published at www.arborfinancialgroup.net.