Stage 2 — Getting Approved
Jumping right into checking potential neighborhoods or browsing house listings is a common mistake first-time buyers make. It’s literally putting the cart before the horse!
Before going out and start falling in love with some properties, it is a good idea to get approved first!
Mortgage approval can be a powerful asset when it comes to evaluating how much you can afford in the way of monthly payments, or to negotiate home offers.
Which is why we’ve dedicated an entire section to figure out the ins and outs of the process!
Getting Approved?
“Getting Approved” happens when a lender studies your current financial information and decides you are an optimal candidate for a mortgage.
When you get approved, you get an estimate of your loan amount, interest rate, and what monthly payments could be.
The exact process varies from lender to lender, but it usually follows a basic pattern. It can also be referred to by other names, like “pre-approval” or “prequalification”.
Why Get Approved?
Getting approved at the beginning of your search has a few advantages worthy of considering, еspecially when you are trying to get a mortgage with less than stellar credit scores.
- Understanding what you can afford from the get-go keeps you, and your real estate agent from wasting time on properties outside of your budget.
- It puts you in a better position to make a strong bid for a home since the seller knows a lender already verified your finances.
- It makes the whole process go more smoothly, making it less likely you’ll run into surprises that could bog down closing the deal later on.
Think of getting approved as an ideal way to start the “getting a mortgage” process. Do keep in mind though, your approval amount will probably vary if your financial situation changes.
What Do Lenders Review for Approvals?
There are typically three significant variables mortgage lenders review when calculating how much you can borrow: Your assets, your income, and your credit.
Assets:
These are the items you own that can be quickly liquidated (turned to cash) if need be.
Checking and savings accounts, stocks, other real estate, personal property, are all considered assets.
Lenders review your assets to make sure you can come up with some money to make your mortgage payments after closing.
Income:
Income is an essential variable that lets lenders know that you can afford monthly mortgage payments.
Lenders also check your DTI (debt-to-income ratio) to make sure that the amount of debt you owe doesn’t offset said income too much. Typically, lenders want you to have a 50% DTI or lower.
Credit:
Credit is the third piece of information lenders take into account when approving people for a loan.
Having less than perfect credit can be a challenge since you’ll probably qualify for mortgages with higher interest rates most of the time. Having said that, credit isn’t the end-all-be-all of getting approved.
Some lenders have minimum FICO requirements, while others are way much more lenient in these requirements.
Click here to find more lenders like that!
Does Getting Approved Affect My Credit Score?
People sometimes hesitate to get approved, since it involves pulling their credit reports – which can lower their score by a few points. While this is technically true, the good news is that when several lenders check your credit over a short span, credit bureaus count these as a single pull. Meaning that your score only gets lowered once.
Steps to Get Approved
While approval steps vary from lender to lender, the following process mirrors most processes more or less accurately:
- Step 1 – Mortgage Pre-Approval: Think of it as a financial pre-screening. Typically, a lender goes over the variables we already mentioned above and determines if you are a viable candidate for a loan. They’ll let you know how much they are willing to lend, and give you a pre-approval letter.
- Step 2 – Mortgage Loan Application: Once you’ve been pre-approved and made an offer for a home that the seller accepted, you move on to the loan application stage. The process is pretty straightforward; you provide a Uniform Residential Loan Application (URLA) containing info about the property, the type of loan being used, and you, the borrower.
- Step 3 – Mortgage Processing: This is one of the most involved steps. Loan processors will collect a variety of documents involving you and the property being purchased including bank statements, tax records, employment letters, the purchase agreement, and some other minor documentation. The Processor can also order credit reports, begin income, asset, and employment verification, and order a home appraisal.
- Step 4 – Mortgage Underwriting: At this stage, all the documentation and data involving the process will be scrutinized, and the underwriter will decide if pre-established criteria are met. Everything here will be double-checked to ensure that both, the property and borrower match the eligibility requirements. If some issues arise at this stage, the underwriter might give you a list of conditions that need to be resolved before moving forward.
- Step 5 – Mortgage Loan Approval & Closing: Once the underwriter is satisfied that everything is copacetic (in excellent order), he’ll label it “clear for close”, meaning every requirement has been met and the loan can be funded.
How long does an approval last?
Approval letters (Step 1) usually last for 90 days, but this varies depending on your type of loan. After those 90 days, if you haven’t made an offer, you should renew your approval before making an offer on a new property.
Choosing The Right Mortgage Lender for You
As you compare potential lenders, there are a few questions you should always ask:
- What are their rates and fees?
- How much time (on average) do they take to close a purchase home loan?
- Do they service loans after a close, or do they sell your loan to another company?
- What’s their availability for questions or in case you need to get in touch?
- Is their process entirely digital, or will you need fax machine and stamps?
Lucky for you, helping people find their ideal lenders is what we do best here at Apply For My Loan!
Click Here, get pre-qualified, and start the process of getting the loan that’s right for you!
