Buying a home is a huge investment. But it’s also one of the best ways to build wealth and equity. It provides valuable tax deductions.
Are you seeking to buy a home soon? If so, it’s essential that you first understand what the mortgage pre-approval process entails. Through the process, lenders can determine whether or not you’re financially eligible to buy a home.
Because of this, it gives you more security as you shop for homes. Keep reading to discover the various requirements for getting pre approved for a mortgage and how to get approved for a mortgage.
Income and Employment Information
You’ll need to meet a few mortgage requirements to get pre-approved for a mortgage. Firstly, you’ll need to have a steady income that’s sufficient to cover your mortgage payments.
Lenders will also want to see a history of employment. They require that you’ve been employed for at least two years.
You’ll also need to show proof of your earnings—income documentation such as pay stubs or tax returns.
Good Credit Score
A good credit score is one of the most critical factors in getting preapproved for a mortgage. Lenders will look at your credit score to determine whether you are a reasonable risk for a loan.
A high credit score means you have a history of paying your debts on time and are less likely to default on a loan. A low credit score could state that you are a high-risk borrower and may not be approved for a loan.
Check out this page for financial guidance. The advisors will guide you on how to keep your credit score high, which will help you get pre-approval for a mortgage.
A Minimum Down Payment
A minimum down payment is required to get preapproved for a mortgage. The required amount varies by lender but is typically 20% of the purchase price. If you buy a $200,000 home, you will need at least $40,000 for the down payment.
In addition to the down payment, you will need to have enough money saved for closing costs, ranging from 2-5% of the purchase price. So, if you are buying a $200,000 home, you should have $4,000-$10,000 saved for closing costs.
A Maximum Debt-to-Income Ratio
Lenders will look at your debt-to-income ratio to get pre-approved for a mortgage. This is the amount of debt you have divided by your income.
Lenders want to see a debt-to-income ratio of 36% or less. This means that your monthly debt payments, including your mortgage payment, should be 36% or less of your monthly income.
Understanding the Requirements To Be Pre Approved for a Mortgage
If you’re considering buying a home, the first step is to get pre approved for a mortgage. A mortgage preapproval is a letter from a lender that indicates how much of a loan you can qualify for.
You’ll need to provide the lender with information about your income and employment history. The lender will also need to pull your credit report.
Once you have a mortgage preapproval, you’ll know how much home you can afford. Also, you’ll be better positioned to make an offer on a home.
Are you interested in finding out more about the home-buying process? Read more on our blog.