Before you start shopping for a new home, it’s a good idea to get pre-approved for a home loan. With a pre-approval letter, you’ll know the price range you can shop within and what to expect. Here’s what you need to know when it’s time to get pre-approved for a mortgage.
What is a Pre-Approval?
When it comes to a home loan, a pre-approval basically means the lender is confident in your level of risk when it comes to the potential loan. Typically, the only concern for the lender, after pre-approval, is the value of the property providing enough collateral for the loan amount.
Where to Start
Getting pre-approved for a home loan starts with your credit. You want to pull your credit report and check your score. Depending on the score, you may need to do some credit repair before getting pre-approved. However, if you don’t have any errors and you have a good credit score, you may not need to do anything else with this step.
Along with your credit, you will need the following to get pre-approved for a home loan:
- Personal Information – You’ll need a valid form of identification, such as a driver’s license, and you will also need to provide your Social Security number.
- Income Information – Depending on your situation, you will likely need W-2s, pay stubs, bank statements, tax returns, or 1099s from the past two years. You want to make sure you have documentation for any additional sources of income, as well, such as Social Security payments, child support, alimony, or income from a second job.
- Asset Information – If you have any assets or you have a friend or family member giving you money, you’ll need documentation for the assets or the gift.
Pre-approval for a home loan will be based on a few factors, such as your credit score and your debt-to-income ratio. Before you apply for pre-approval, make sure you know your credit score and your DTI or you may be applying for no good reason. Sometimes, it’s better to work on your credit first before applying for a home loan.
Why You Need to Get Pre-Approved for a Home Loan
Shopping for a home without a mortgage pre-approval will likely set you up for failure. You don’t want to be shopping outside of your price range or shopping for a home when you cannot even get a mortgage.
A pre-approval for a home loan gives you leverage when you’re ready to make an offer. It also ensures you know what price range you can shop within and you have a lender you’re comfortable working with for your new home. Most real estate agents recommend getting pre-approved for a home loan before starting the shopping process. If you’re ready to buy a new home, RedZone Realty Group is here to help. We will help you find the right home for you and guide you through the entire process from pre-approval for a home loan to move-in day.