Why You Need A Mortgage Pre-Approval, and How To Avoid Being Declined
Understanding Mortgage Pre-approvals and How to Avoid Being Declined for One
The mortgage process is a long and complicated one, with a number of similar-sounding terms that can easily confuse first-time homebuyers. A pre-approval is not the same thing as a pre-qualification, and it’s important to understand everything that goes into a pre-approval. Being declined during the pre-approval process means the lender can not give you a loan to buy a home at this time. It’s important that you know what the process is going to look like before going into it, and to have the pre-approval before finding the perfect property.
How does a pre-approval work, and how can you make sure you won’t be declined? Here’s what you need to know.
What Is A Mortgage Pre-Approval?
A mortgage pre-approval should be the first step of the home buying process. Being pre-approved means you have a preliminary loan commitment from a mortgage lender. A pre-approval isn’t necessarily a guarantee that you’ll get a mortgage, but rather, a statement that if all goes according to plan, your lender will most likely issue a mortgage to you.
Pre-approvals can make the mortgage process shorter and easier, but they’re not legally binding. You are not obligated to take out a loan with a particular lender, just because they pre-approved you. If you shop around and find a better mortgage through different lender, you are welcome to use that lender instead.
What Do You Need To Be Pre-Approved?
In order to be pre-approved, your lender will need to evaluate your finances and your ability to pay for your mortgage. You’ll want to meet with your lender and provide them with bank and creditor documents that clearly show your income, your assets, and your debts. You can expect your lender to run a credit check in order to determine your employment status and verify that you’ve accurately reported your finances.
If you meet your lender’s criteria, you’ll receive a commitment letter that states what size of a mortgage your lender is willing to give you. (This is useful for narrowing your home search.)
Red Flags: Sure Signs That You May Be Declined
You can be declined for a mortgage pre-approval for any number of reasons. If you have a poor credit score, a high debt-to-income ratio, or a low or unstable income, you likely won’t meet the lender’s minimum borrower requirements – and you’ll be declined. To avoid being declined for a pre-approval, you’ll want to ensure you always pay your bills on time, pay down your debts, or boost your income.
What Happens If You Can’t Get A Pre-Approval At This Time?
It happens sometimes. Rather than believing you’ll never be able to buy a home, you can work with a great lender who will let you know what steps you can take to improve your credit and debt-to-income ratio, to put you on the path to home ownership. Sometimes it takes a little time, but at the end, the hard work is worth it.
If you’d like more information about the home buying process, or a referral to a mortgage lender, contact us today!
The Wahlberg Group
Keller Williams Pacific Estates