Figuring out the Mortgage Pre-approval Process
It’s been said, home is where the heart is, but getting your heart into your new home can make it skip a few beats without a little educational prep. So, let’s dispel the mystery of an important, early step in the quest for your heart’s happy place and consider three main areas of focus for your lender to grant the exalted loan pre-approval. Once you have the influential letter in hand, you and your steady heart will be ready for your REALTOR® to set up showings!
Your lender will need to verify income and employment, including length of time working in your field as well as earnings. You can prepare by gathering dated employment letters, pay stubs and tax info. That way you’re not scrambling to find or request copies after your dream home has been on realtor.com for three weeks. If you are self-employed, commission-based or otherwise earn income that deviates from a typical paycheck scenario, a good rule-of-thumb is to plan to apply for a mortgage with about a two-year track record, though this period can be truncated or lengthened depending on your situation and other risk factors.
What to Know About Your Credit Score
The lender considers credit scores one of those main risk factors. More loan types and better rates are available the better your credit. FICO, the credit scoring algorithm most often used by
lenders in the United States, ranges from 300-850. The breakdown for how your credit ranks is: 300-629 is bad; 630-689, fair; 690-719, good; and 720-850, excellent. All other things being
stellar, I’m told by Allison Tremper of The Mortgage Firm, my local lender in Viera, FL, that credit as low as 580 on the FICO scale can still score you a mortgage in the current lending
culture.
Finally, the lender will take assets you own into consideration. Obviously, the money you have squirreled away to cover down payment and closing costs will need to be reflected in savings and checking accounts and not kept under your mattress till applying for a loan, but retirement
savings and other types of assets can make you a better credit risk. The lender will always be weighing risk factors when determining eligibility for a loan, and more assets equates to less risk for the lender.
Ultimately, the collateral of the loan (the house, considering its condition and value) may limit options made available by the previous factors considered. Collateral will not be taken into consideration during pre-approval, however, since it will be a factor later, communicate with your lender if you have an eye for fixers. But, being prepared to verify income, credit and assets will have you ready to get your hands on the glittering pre-approval letter that qualifies you to make a quick offer for the home of your heart’s dreams…and now you’ll impress your
lender when you have it together ahead of time!
Thank you Allison Tremper and The Mortgage Firm in Suntree, FL for participating in creating this content!
