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4 Tips for Getting a Preapproved Mortgage Loan

Are you thinking of buying a new home?  Feeling overwhelmed and just aren’t sure where to start?  Well, don’t panic!

Just a few years ago, it seemed as if lenders would loan money to anyone with a pulse but those days are long gone my friend!   Now, home buyers have to jump through a myriad of hoops in order to qualify for a mortgage loan.

Here me when I say this – “There is no more important step when looking to buy a home than to get a letter of preapproval from a reputable bank or mortgage company.”

There are several benefits to taking care of this step in advance. (1) the letter tells the home seller that you have had your credit examined and have the financial capacity to qualify for a home loan. They will consider your offer more seriously when accompanied by the preapproval letter (2) you will know exactly how much you can afford to spend, (3) the letter shows your real estate professional that you are a serious buyer!

So, here are some tips to get you started down the road to mortgage preapproval.

Know Your Finances

Any lender worth a second conversation is going to ask a slew of financial questions related to your income and credit situation so most savvy buyers will begin by gathering important documents such as:

  • Last two years of tax returns including your W2 or 1099 statements
  • Last two months of bank statements
  • Two most recent pay stubs
  • Copies of any investment account statements
Start the folder now and begin putting these items away so you won’t have to dig through your filing cabinet or storage unit looking for them!

Shop Around

Mortgage companies and banks have different loan packages and options to suit the needs of a diverse population.  While FHA loans require a small minimum down payment, there are USDA and VA loans that offer up to 100% financing.  Conventional loans have great rates but often ask for a larger percentage down to avoid private mortgage insurance, an additional amount required by the lender when less than 20% down payment is being provided.

Also, ask the lenders for the APR (or Annual Percentage Rate) on their loan, not just the “interest rate“.  The APR will help you compare not only their stated interest rate but also the amount of closing costs built into the loan.  Companies with different rates and closing costs can be compared side-by-side this way.

Know Your Credit Score

Your credit score is a key component in getting preapproved for the home loan.  Lenders use it to determine the interest rate you will be charged or whether you will qualify for the loan at all!  You are entitled for a free copy of your credit score once per year and you can get a copy by clicking this link.

Also, do not go out and make any large purchases while you are trying to get approved to buy a home.  Avoid that new car or financed vacation as it may impact your qualifying ratio.

Deal With The Best Lenders

Top quality lenders will ask the right questions up front and do a good job of telling you what will be required of you in order to qualify for the loan.  The last thing you want are surprises once you are under contract to buy only to discover the lender didn’t do their “due diligence” up front to ensure the loan would pass through the scrutiny of an underwriter. Your Realtor should be able to recommend several reputable lenders but feel free to ask around to your friends and family who may have purchased a home recently.  Word of mouth referrals are great!

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