A Checklist To Get You Through The Mortgage Pre-Approval Process

mortgage-application-approval

A home is likely one of the biggest purchases you’ll make in your lifetime. And unless you’re planning to pay it off with cash, you’ll need to secure a mortgage.

Don’t let the mortgage application process intimidate you. It’s an involved task for sure, but we’re here to help you through it. Below we’ve listed the various tasks you’ll want to check off as you go. Best of luck to you!  

First, Know The Difference Between Pre-Qualified vs. Pre-Approval

Both mortgage pre-qualification and pre-approval can give you confidence when navigating the home buying process–but it’s important to understand the difference between the two and know when to do which.

Pre-qualification: Think of pre-qualification as an estimate of how much you may be able to borrow–the first step when beginning your house-hunting journey. The pre-qualification process assesses whether your debt-to-income ratio aligns with U.S Bank’s program guidelines for home loans.  

Get an idea of what your mortgage payments could look like with a mortgage calculator. Remember, these types of resources only take into account the home’s value, the down payment you’ll put down, the needed loan amount, interest rate, and other factors. A mortgage calculator doesn’t go as in-depth as a bank would into your specific situation.

Pre-approval: A process that involves similar steps, but is done when you’ve found a specific property and dives deeper into information about your income and assets. If pre-approved, you’ll get a conditional commitment by the lender for an actual loan amount. (This checklist dives into the mortgage pre-approval process.)

Decide Which Mortgage Is Right For You

Let’s start with the basics. A mortgage is a loan given by a bank or lender that helps you finance the purchase of a home.

In exchange for your mortgage, the lender or bank takes the title of the property as collateral until the mortgage is repaid. Mortgages are usually paid on a monthly basis, with payments made up of principal, interest, taxes, and insurance.

You’ll want to determine which type of mortgage one, you’re eligible for, and two, which best suits your needs. The most common types of mortgages include:

Adjustable-Rate Mortgage (ARM): A loan in which the interest rate is fixed for an initial term, but then fluctuates with market interest rates. Monthly payments are unpredictable after the initial term.

Fixed-Rate Mortgage: Also known as a “traditional” mortgage is a mortgage where the borrower pays the same interest rate for the life of the loan. Most fixed-rate mortgages have 15 to 30 year-terms.

FHA Loan: A mortgage that’s insured by the Federal Housing Administration. A popular option for first time home buyers because for credit scores of 580+, the down payment can be as little as 3.5%. The catch–the borrower must pay mortgage insurance premiums to protect the lender in case of default.

VA Loan: A loan option available to United States Veterans and Service Members issued by qualified lenders and guaranteed by the U.S Department of Veterans Affairs (VA).

USDA Loan: A special type of zero down payment mortgage that eligible homebuyers in rural suburban areas can get through the United States Department of Agriculture’s loan program.

Fill Out A Mortgage Application

Once you’ve chosen a type of mortgage, you’ll be required to submit documents that verify the personal and financial information you included on your application. Your lender will use this to either approve or deny your application–and further, determine how much to approve you for.

A federally required mortgage application can be typically filled out on paper, through an online forum, or verbally with your lender. Be prepared to provide the following pieces of information

  • Full name, DOB, phone number, and SSN
  • Marital status, number of children and their ages
  • Residence history for at least two years and payments associated with those residences.
  • Employment and income history for at least two years
  • Asset account balances
  • Debt payments and balances for any fixed debt obligations
  • Confirmation of any bankruptcies or foreclosures within the past seven years, if you are currently involved in any lawsuits, or if you co-sign any loans
  • Confirmation if any part of your down payment will be borrowed

Verify The Information Provided On Your Application

After completing the mortgage application, you’ll be required to provide documentation to verify the information included. Documents required will vary case-by-case, but generally, you can expect to submit the following:

  • Tax documents: Most lenders will want to see one or two years worth of tax documents to make sure your annual income is consistent with your reported earnings. This will likely mean you’ll have to sign a 4506-T so the lender can obtain what they need from the IRS.
  • Proof of income: This can include pay stubs, a W-2, award letters from social security, pension, disability, child support, or alimony check and deposits–really any form of documentation that allows lenders to see what your current earnings look like. Lenders will check to make sure there are no major fluctuations from year to year.
  • Bank statements: Lenders will look at statements from your bank to ensure you can afford a down payment and have several months worth of mortgage payments on reserve in case of an emergency.
  • Asset statements and holdings: Besides your checking and savings account statements, the bank will want to see statements for whatever other assets you own. Cds, IRAs, stocks, bonds or other securities you have in your name. If you have other real estate holdings you’ll be required to provide the property address, current market value, mortgage lenders name, loan account number, balance, and monthly payment.
  • Credit history: Lenders will request credit reports from each of the three major credit bureaus and examine them carefully to determine your credit risk. Know that incorrect information can cause higher rates, or even keep a lender from approving you for a mortgage.
  • Photo ID: A drivers license, passport, or another form of identification to prove you are who you claim to be.
  • Renting history- If you were previously renting a home, lenders will request documentation to prove you can pay on time. This could be a year’s worth of past rent checks or documentation from your landlord showing you paid rent on time.

While this may seem excessive, it’s actually in your best interest to give the lenders whatever they deem necessary to approve you. This will ensure you get approved for a loan you can actually afford. Keep in mind, additional documents may be required at your mortgage closing–but your mortgage officer will guide you through the process further.

Financing options and rates can vary widely. It’s important to do your research and shop around to ensure you get the mortgage that best meets your needs at the best price. When it comes to getting a mortgage to purchase a home in the Triangle, we have a few suggestions.