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Mortgage PreparationThe mortgage process can be full of highs and lows, but nothing can make you feel worse than finding the perfect home only to be denied for a mortgage. That ultimate low can be avoided by being pre-approved. Pre-approval will help you shop for a home by defining how much you spend and prepares you for how much you will need out-of-pocket and what your monthly payments will be. Here are a few things that you should do and what to expect during the pre-approval process.

Get Your Credit Reports

The first step you should take before applying for any loan is to obtain a copy of your credit report. You can get a free copy from each of the major credit reporting agencies by going to www.annualcreditreport.com.  Normally, we recommend that you only get your report from one agency every four months so that you have up-to-date information year-round, but with a mortgage you should get all three at once. This will help ensure that there are no surprises during the pre-approval process.

We suggest that you obtain your credit reports six months prior to starting the pre-approval process. This will give you time to address any accounts that may prevent your getting a mortgage, pay down your credit card debt, and/or build a larger down payment. A higher credit score will directly translate into lower interest rates, and thus a lower monthly payment.

What Is Pre-Approval

Pre-approval is different that pre-qualification in that all of your financial information is verified. At the end of a successful pre-approval process you will be given a letter saying that a mortgage is available to you after you make a purchase offer and have submitted: the purchase contract, the preliminary title information, the appraisal, and your income and asset documentation. The letter is a sign that a lender is certain that you can offer the down payment and your income can cover the mortgage payments, but it is not a 100 percent guarantee of a final mortgage approval.

Three Stages of the Mortgage Process

  1. Pre-qualification is usually an informal process where you meet with a lender’s mortgage specialist. During this initial meeting you should be given a vague idea of your price range based on your gross income and debt-to-income ratio.
  2. Pre-approval means that a lender has taken the time to look over your employment history, income, and credit report. Based on that information, the lender has determined which mortgage programs you qualify for, the interest rate you will be required to pay, and the maximum loan amount that you will be approved for. Once the mortgage specialist has determined all of that, you will need to submit your last two years’ tax returns and W-2s, your most recent pay stubs, bank account statements, and a signed authorization to order your credit report. Those documents are then handed over to the underwriter for the final phase of the pre-approval process. Since underwriting is done by computer today, you should get a response within minutes. You will either receive a pre-approval letter or a letter with a list of items that you must address prior to final approval.
  3. During the mortgage commitment phase the lender must verify the information that you have provided, verify the value of the property, and enure that the deed to the property is clear. Once that is done, all of the information is submitted to the underwriter. The underwriter will issue one of the following: an approval, approval with conditions, suspended application (this means the underwriter wants more information), or a denial.

The mortgage pre-approval process is straight-forward and easy. It is just a matter of submitting all of the requested paperwork. By defining your maximum loan amount and the required down payment, the process will help you narrow your home search and potentially help you avoid some bitter disappointment. Additionally, in a competitive market, a pre-approved client will have their offers looked at more seriously than someone who has not gone through the process.

 

About the author: Jerry Coffey

 

Jerry Coffey spent many years in a debt-riddled gray area somewhere between broke and desperately broke. His seemingly endless need for more and more cash led him to payday loans, repossessions, bankruptcy, and depression. After years of the same financial style, he heard a piece of advice that inspired him to find a way to change. The advice: ''The very definition of a fool is someone who continues to do the same things, but expects different results.'' This led him to a much more frugal lifestyle that sees all of his bills paid on time and a growing savings account. Even the seed of a retirement account has begun to sprout.

 

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