Home loans are a great way to buy a property. However, the process of applying and getting a loan might seem long and complicated. If you wonder how to get pre-approved for a home loan but don’t know where to start, this article can help you.
What are home loans?
Commonly known as a mortgage, a home loan is used to pay for a house. The property purchased with the home loan acts as collateral until the loan is paid in full. This type of loan offers higr funds with low interest rates.
The amount available to borrow is determined according to the borrower’s income: most lenders approve home loans that cost up to 2.5 times the borrower’s annual gross income. The amount is repaid in monthly installments in 15 to 30 years.
How to apply for a home loan?
If you’re interested in buying a home, you need to know how to get a loan for a house. The process starts with finding a lender, submitting an application, waiting for the analysis, and getting the approval or denial.
So, what do you need for a home loan? You need proof of your credit score, employment details, and personal information. Documents that prove your income, such as W-2 wage statements, bank statements, and tax returns. Proof of your assets, like funds for the down payment, closing costs, and a cash reserve, is needed too.
Now, you understand what a home loan is and how to apply for a home loan. Next, we’ll explain how to get pre-approved for a home loan.
What is the process to get pre-approved for a home loan?
When applying for a mortgage, you are subject to an analysis that determines if you are a good candidate for the loan. Even though the lending process is generally thorough, you can get a preliminary analysis saying that you can repay that loan before getting the money.
The preliminary analysis will also determine your mortgage rates and repayment plan. If you receive a positive response, you’ll become pre-approved for the loan.
To be pre-approved means you meet the initial eligibility requirements to apply for a loan. Pre-approved applicants are still subject to the lender’s verification standards before the loan is approved for funding. However, they have a better chance of getting a home loan approval.
Typically, a pre-approval is not a requirement to apply for a mortgage. However, if you present a pre-approval letter, it’ll most likely improve your chances of getting the loan.
How can you get pre-approved?
Knowing how how to get pre-approved for a home loan is a significant step because it puts you ahead in the path to buying a home. It also allows you to discuss loan options, rates, and budgets with the lender. That’s why it’s important to seek pre-approval with multiple lenders.
When asking for pre-approval, you’ll have to complete requirements that vary from one lender to another. The process is thorough because it involves filling out a home loan application. Generally, the lender will ask for the following documents:
- credit score;
- credit report;
- social security number;
- proof of assets;
- proof of income;
- bank statements;
- tax returns;
- employment history;
- past addresses;
- report of any outstanding debt.
After you submit those documents, the lender will evaluate your financial profile and discuss the budget for your purchase. You’ll be able to explain how much you can afford to pay in monthly installments.
Monthly installments are determined by the property price, down payment, taxes, insurance, and interest rate for the loan. They are also determined according to your monthly income and credit score — a higher credit score will give you better conditions.
Take into consideration that any pre-approval letter is valid for a limited time. This limitation occurs because the document describes your current financial situation, which can change over time and affect your attractiveness to lenders.
Take the first step!
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