One of the first things a mortgage lender will look at when determining your eligibility is your debt-to-income ratio, which is how much you owe each month versus the total amount of money you make. A lower debt-to-income ratio means a lower risk of rejection. If you have already begun saving, you can subtract any emergency funds you have from savings, as well as large bills and insurance premiums.
Next, you’ll need to gather all of your final documentation. Your lender will want copies of your latest pay stubs and your federal tax returns. Lenders may call you to verify your employment. Self-employed borrowers may also need to provide an updated business statement or profit and loss statement. Although mortgage approval is fast, you must be sure you have the documentation necessary to get the loan.
Once you’ve completed the application process, the lender will order a third-party appraisal of the property to determine what it’s worth. This will give you a good idea of what you can expect your home to appraise for. During this stage, most of the process is a waiting period, during which the Loan Processor orders the necessary credit reports, tax transcripts, and title search reports. Lenders check all information on your application before approving your loan, including your credit score. Look out for ways on how to shop for mortgage rates.
Once the underwriters have reviewed all the documentation, they will issue a decision. If everything is in order, they will accept the loan as proposed, reject it, or give you conditions to complete the application. In either case, the lender will lock in the mortgage interest rate, which will determine your final mortgage payment. Finally, you’ll have to wait for the closing to occur. You’ll likely need to sign several forms and pay a large deposit before you’re officially approved.
Once you have the pre-approval letter, it’s time to shop for a mortgage lender. This way, you can find the best interest rate and loan amount. Pre-approval also gives you more confidence in the process, as it gives the seller an assurance that you’re serious about the purchase and are ready to move quickly. You can even start searching for a home if you’re approved!
Once you’ve been approved, the next step is to tour properties and make an offer. Having pre-approval will speed up the home buying process. It can take a few days or weeks, depending on the health of your financial situation and your documentation. If you’re self-employed, you may experience longer than usual, because issues with debt and credit may complicate the process.
If you have good credit, pre-approval will help you get the best interest rate possible. If you’re self-employed, your credit may not be as strong. In these cases, you may have to work with a lender who specializes in subprime loans.
Rates are often lower on pre-approval mortgages than they are on the next-best mortgage available. This is because lenders know that borrowers will be approved for the lowest rate available.
Consider refinancing your mortgage if your interest rate has fallen significantly since the last renewal date and you’re still paying more than 20 percent of your gross income toward housing costs. You can refinance into a new 30 year fixed rate loan with no prepayment penalties and lower monthly payments if you meet certain criteria . You can also save money by refinancing into your dream home’s price range .