Mortgage pre-approval makes a great deal of sense when you are planning to buy a house. A pre-approved mortgage is particularly of benefit if your finances are not exactly as you would like them, but you need to confirm you can afford the monthly payments required for your dream home.
Imagine the embarrassment if you made a conditional agreement to purchase a property and then found that you were unable to secure the loan. You would have to inform the current owners, who may have turned down other offers in favor of yours, that you cannot raise the money. Mortgage pre-approval solves this issue and others as well.
Securing a Pre-Approved Mortgage
What is involved in securing a pre-approved mortgage? It’s worth finding out, because in today’s housing some mortgage lenders are offering mortgage pre-approval with maintenance of the agreed interest rate for up to 120 days. This gives you around four months to find a house. The alternative is to take as long as you want to find your dream home, and then risk having a higher mortgage rate.
Pre-approval means you know the maximum monthly payment for the price you have offered. You will also learn from the mortgage lender all the ways you can use to reduce your monthly payment. There are many benefits, so what do you have to do to arrange mortgage pre-approval?
Arranging Mortgage Pre-Approval
If you are seeking a pre-approved mortgage, you will need proof of income and expenses, including current debts – the basic information required for a loan or mortgage of any kind. You can choose between a shorter term mortgage such as a 15 year fixed mortgage and a longer term 30 year fixed mortgage in addition to a wide range or adjustable mortgage options that will have lower rates.
Make sure that you have all the documentation and information required before discussing your mortgage with your choice of lender. Again, this is no different to what is needed for a regular mortgage arranged after your offer. You will generally need the following documentation (there may be other required documentation as well):
From your employer:
- Your name and position within the company
- Your gross annual income and proof such as a pay stubs and W-2s
- How long you have worked with the firm
- Your financial statements for at least the last two to three years
- Your tax returns with proof from IRS if requested
- Proof of residence for the requested period – most will ask for three years.
- Social Security number
- Value of any assets – other homes, cash in the bank, stocks, etc
- Details of your debts and debtors
- Banking details
- Your past credit history: any problems or court judgments.