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If you are looking to buy a home you may need to budget more time than you may think. The mortgage process takes about 30 days on average but can take up to 60 days in high-volume times.
Knowing what to expect during the process can make it go smoother and make it easier to get a home loan. One of the first steps is to learn how to qualify for a house loan. If you do this, you can make sure you meet the criteria, putting you steps ahead in the process.
Mortgage Preapproval vs Mortgage Prequalification
The differences between a preapproval and a prequalification are a little confusing to most people. Both tell you that you have a chance to be approved for a mortgage loan. However, they give you different amounts of information and different chances of actually being approved.
In general, a preapproval carries more weight and is much more valuable in the home buying process. This is because a prequalification is an estimate of credit based on what the lender knows. It is conditional and will require additional information later on.
Many times, lenders will use prequalifications as a marketing tactic to find new customers. The borrower will still need to have a hard credit inquiry later on. A prequalification is not a guarantee that a lender will lend any credit at all.
For preapproval, the lender checks the applicant’s credit and verifies their documentation. This allows them to approve the buyer for a specific loan amount for a certain length of time.
A preapproval letter shows that you should be able to qualify for a mortgage. This makes it much easier for a buyer to accept an offer once you make one as buyers will see you as a more serious potential buyer.
How to Qualify for a House Loan
The first step to getting approved for a home loan is to talk to a lender. Choosing a lender that is a good fit for you is critical to making the home buying process go smoothly. For factors to consider when choosing a lender, you can check here for more info.
Your lender will be able to discuss their specific criteria for approving loans. They can also help go over the criteria, see how your situation lines up, and offer any advice.
Sometimes there are aspects of their finances that potential buyers need to improve before they will be able to get approved for a mortgage. That’s okay. It’s better to start early to know where you stand. In general, there are a few criteria lenders will look at before they approve your loan.
Your lender will be able to help you get a preapproval. Once you have your preapproval letter, you can confidently look at houses within your budget. Finding a good real estate agent can make home shopping easier.
Once you find your new home, you can put in an offer. If the seller agrees to it, you’ll have to go through a few more steps including a home inspection.
At this time, your mortgage will go through the actual approval process. Once the lender makes a final decision on your home loan, you can go to the closing and move into your new home.
Each lender’s requirements will be different. In addition, the specific income requirements may change based on how big of a mortgage you are looking for. In general, potential buyers must show proof of income.
For most people, this may include W-2 statements and recent pay stubs with year-to-date information. Any additional income must also have documentation such as for alimony and bonuses. Many lenders also require the past two years’ tax returns.
As a borrower, you need to be able to prove that you have the funds for the down payment, closing costs, and some cash reserves. Your lender will need bank and investment account statements as proof of these assets.
A FICO credit score of 620 or more is usually required in order for lenders to approve a conventional loan. If your credit score is above 760, you may be able to get the lowest interest rates available.
If you have a lower score, you usually have to make a larger down payment. Your lender will probably also suggest ways to improve your credit score if needed.
Lenders want to know you have stable employment so they can feel more comfortable lending you money. Many lenders will call your employer to verify your employment and salary. If you recently changed jobs, they may even call previous employers.
If you are self-employed, you will need to provide additional paperwork. This will include at least your two most recent tax returns and all related schedules. You might also need to verify various information about your business before a lender will approve your home loan.
When you apply for a pre-approval, your lender will need some other documentation. This usually includes your driver’s license, Social Security number, and signature.
Your lender may also require additional documentation later on. Be sure to gather any requested paperwork as soon as possible in order to make the process go smoother.
Qualify for a Home Loan for the Home of Your Dreams
Being able to qualify for a home loan can help you move into a home that better fits your needs. But in the meantime, you’ll need to be able to get a mortgage. Knowing the steps for how to qualify for a house loan will make the whole process go much smoother.
If you found this article helpful, be sure to read our other finance articles too.