Get Pre-Approved For A Mortgage Versus a Preliminary Approval
It is important to note that a mortgage pre-qual is not the same as a mortgage pre-approval. A mortgage pre-qualification or preliminary approval is sometimes based on stated information and the bare minimum of a pulled credit report. There is NO loan commitment with preliminary approval. This is why we are giving you the total benefit here to Get Pre-Approved For A Mortgage.
To get a pre-approval, you must submit all of the required documentation. That documentation must meet the requirements of the proposed loan terms. This includes but is not limited to credit scores, income stability, debt to income ratios (DTI), which means that credit obligations plus payment plus taxes and insurance (PITI) are justified.
Assets must be approved and in line with down payment requirements, closing cost/fees, etc.
We will discuss what it takes to get a pre-approved for your mortgage transaction.
Mortgage loan applications are up due to the low-interest rates and the refinance boom and it is stated that approvals are taking longer to get to closing.
These are currently the average trending rates being listed
- Conventional 30 Year financing down to 3.250% +-
- A 15-year mortgage is down to 2.590% +-
- FHA 30 Year is down to 2.850% +-
- Jumbo 30 Year is at 3.120%+-
- *as of 12-22-21
These rates are not quotes and each lender may vary according to their own pricing. This may include but is not limited to product type of financing (purchase transaction, rate/term refinance, cash-out refinance, and other factors). There are many factors that go into your rate of interest. Buydown points can be included in closing costs to obtain a lower rate as well.
Questions To Answer While Getting Ready For A Pre-approved For A Mortgage Loan
Employment and Income
- Are you employed on a regular basis? How long have you worked for your current employer? If you have worked less than 2 years for your current employer, you will need income documentation from your previous employer (W-2s, and sometimes verification of employment.
- Is income stable, is your income from salary, commission, bonus, self-employment, or tip income. Are you paid weekly, bi-weekly, bi-monthly, or monthly? You will need one (1 full) month of paystubs. W-2s for 2 years. Commission income is usually considered stable if you have received it for at least 12 months and it will continue. Bonus income is usually calculated for the past year and year to date. Self Employed income is usually calculated for the past 2 years.
- Do you have deductions for anything other than normal taxes/social security, etc. on your paystub? This can include deductions for child support or alimony through your employer.
- W-2s for the past 2 years will help determine your income stability and continuity.
- Self Employment depending upon the status; sole proprietor (Schedule C), Corporation, S Corporation, Partnership, etc. Normally 2 full years of 1040 Tax Returns, with all schedules, Corporate Returns (1120), S Corp Returns (1120 S), and Partnership returns (1065). * Net income is used for qualifying purposes which is gross income less allowable expenses and deductions.
Business Tax Returns Documentation Examples and How too’s.
You are familiar with these no doubt, however, you may have questions regarding how income is calculated for these types of businesses.
Schedule C 1040 Tax Return Instructions
About Schedule C (Form 1040) Here
K-1 2019 (Form 1120-S Corp Return
Basic Guide to Corporate Income
About IRS Partnership (1065) Returns
Credit Report
The lender will order a tri-merged credit report from the major 3 bureaus to verify your credit obligations. This includes installment loans, revolving charges (credit cards, usually, or a home equity loan (if one). The credit report will grade how the borrower has paid their credit obligations. If no delinquency, the better the credit scores, and this will enhance the borrower’s ability to qualify for the loan.
TransUnion, Equifax, and Experian are the three major bureaus. All lenders, banks, do not always report to the same bureau. This is why lenders pull all three bureaus. The borrower’s credit score is based upon the middle credit score which is called the representative score. The guidelines require at least two credit scores to be obtained. The middle score is used in the tri-merged report. The lower score is used when you have only two bureaus’ reports on the borrower.
A two-year history of obligations is normally used. However, there are instances where there may be none, one year only, or similar. This is when for first-time homebuyers alternative documentation may be obtained by the lender. These include insurance payments for vehicles, cable, phone, utilities, etc.
It is important that all obligations are paid in a timely manner which is deemed no 1 x 30 days delinquent. If there are late payments these must be explained, with documentation (if applicable) if they are not excessive or determine the loan is not denied due to the delinquency.
How To Calculate Your Debt to Income Ratio
As you know getting a loan means that your income must be sufficient to support the payment which includes, tax/insurance, HOA fee (if applicable), and mortgage insurance if the loan to value is greater than 80%. Therefore, your credit obligations are viewed as the credit report which is obtained by the lender once you make the application.
See how the DTI is calculated here.
Assets For Closing Documentation To Get Pre-Approved For A Mortgage
- 2 months of bank statements for each account. This often depends upon the lender and if your bank statement shows large deposits, they must be explained. Documentation includes, but is not limited to deposit slips, transfers from one account to another, loan documentation (if the funds are from a loan).
- If funds are in the form of a gift, a gift letter is required, and the full transfer from the donor’s account to the borrower account. *many lenders and acceptable transfer of the gift funds is to have a gift letter from a relative, and other appropriate sources and the funds are transferred by certified funds at closing. Guidelines here for a gift., and closing funds.
- When assets from a 401K or other acceptable sources, evidence of funds, how these funds may be withdrawn, withdrawal, and deposit into the bank account.
Property Appraisal
This of course is the collateral for the loan, therefore one of the most important issues that must be in compliance with FNMA/FHLMC/FHA or VA guidelines. These guidelines are extensive and the appraiser is the capable one to know what the guidelines are.
Selecting a property is important to the borrower as the Sales Price and downpayment will determine facets of the loan that are important. Getting a home that is affordable is key to keeping your credit obligations in perfect harmony with standard credit policies.
Tips For When You Select A Property is here.
What Does The Appraiser do When The Property Has Been Chosen
Adapted from Mortgage Appraisal Report on this site.
The appraiser must get a copy of the purchase contract and legal description (if a purchase), legal description (if a refinance) of the property, and the details of the pending purchase or refinance. He/she will then call the homeowner and set up a time to visit the property to do the inspection of the home and land/lot.
A majority of appraisals ordered through the lender require an interior and exterior inspection. Meaning the appraiser must measure the inside of the dwelling, reviewing the workmanship of the home structure both inside and out. He/she will evaluate the condition of the home.
This means that they will review the entire house including the attic and basement (if applicable) and determine the material which has been used to build the home, both inside and out.
Every Corner Of The Dwelling Is Appraised
The material and condition of the walls, i.e. sheet-rock, paneling, floors, ceilings, kitchen cabinets, and any material used in the home. The grades of material used will also determine the cost per foot as some grades are more durable than others. For instance, if the floors are ceramic, hardwood, or just plain tile floors; the ceramic and hardwood flowing, of course, are more expensive, will last longer, and are more valuable than tile floors.
The features and amenities of the home also help to determine the final value. For instance, if the home is a custom-built dwelling, the grades of materials are important to the final value. The number of square footage; total rooms, the bedrooms, baths, and separate dining, all add to the final decided value.
This can and will increase the value if existent in the home. It includes high-quality appliances, hardwood floors, the amenities in the bath (whirlpool/separate showers/tub) are also important to the evaluation process.
The outside features include but are not limited to; a deck, double garage, or carport, and a paved drive will also be part of the evaluation. If a pool exists on the property, value is added for the pool, and there should be a comparable to show the sale-ability of the home with a pool.
Note The Following
I always tell my readers that mortgage guidelines change daily. I have written what is applicable at the present, or near present. With the current Coronavirus, some guidelines may vary.
Different lender guidelines may vary to some degree. The product type, the credit scores, the entire loan files may be evaluated in an automated underwriting system. Desktop Underwriter (FNMA) or Loan Prospector (Freddie Mac). The lender will then base the documentation needed upon what these systems require based upon the loan application information and could be less or more needed information.
