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Real Estate and mortgages

How To Get Pre-Approved For A Mortgage

When you are searching for a home, having a pre-approval letter for a mortgage is an important process. A pre-approval letter helps you with the opportunity of discussing your rent agreement, loan options and making a budget. This also helps the lender to understand your home buying budget, goals,  and how much your monthly  payment should be.

Before you get approved by the lender, you need to keep in mind several important factors that lenders will look at. These include your credit score, credit history, DTI (Debt-to-income) ratio, employment history, monthly income, and your assets.A mortgage pre-approval is a test of your finances. The lender checks every aspect of your financial life to ensure whether you can repay the loan or not. You can get a mortgage pre-approval after filling out a pre-approval application. This application includes all your information and also your social security number so the lender can verify the information you provided. A lender can also do hard credit pull to see if you are worthy of getting the loan (very few cases do they do a soft-pull on your credit to pre-approve you). Also, you will have to list all of your bank information/statement, assets, debts, income and employment history, past addresses, and other critical details for a lender to verify.

To get your approval rates up you need to keep following in mind:

Income proof:

Lenders usually require income statements like W-2 of the past two years, recent allowances, year to date income, proof of any additional money in the form of bonuses and tax returns of the last 2 years. Getting those documents ready will help accelerate your pre-approval process. Paychecks for the past month or two, W-2 for the past 2 years, and bank statements for the past 2 months.

Assets declaration:

Lenders require bank statements and account statements to prove that you have enough money to afford the loan.

The lender will be able calculate the debt to Income ratio with this information. This is done by adding up your debts and the new mortgage loan, and then divide the sum by your total income before tax for your back end ratio. The resulting percentage is the DTI. If your back end DTI is equal to or below 43% you are eligible for the mortgage. The higher the DTI the less likely you will be qualified for a loan (or the less favorable the terms of your loan will be) because chances are that you will struggle to repay. You need to keep your DTI as low as possible. You can do this by cutting off the extra budget from your finances and pay off debts.

Good credit score:

A good FICO score of 6120 or higher is usually required by lenders to approve a loan. Usually, lenders prefer buyers that have a credit score of 740 or more, they also get lower interest rates. Buyers with low credit scores need to pay a larger down payment.

You will find a number of FICO scores, and they are used for different things. The score used when you buy a car is different from the one you use to get a mortgage. Also different from the one they use for an unsecured loan, so do not think they will use your Credit Karma score to approve you for a mortgage. If your score is low uoi can always qualify for non-traditional mortgages.  Federal House Administration usually allows approved buyers with a score of 580 or more to pay interest as less as 3.5% on a down payment.

Employment verification:

Buyers that have stable employment are chosen more preferably by lenders to give loans. Lenders not only check your pay stubs but might also call your employers to confirm the details you gave including even contacting a previous employer if you changed jobs. They usually wants to see a 2-year work history.

If you are self-employed you need to submit additional documents about your business and income. The demand for your product or services your business provides, the strength of your business revenues and the ability to keep generating profit is also checked. Self-employed buyers also need to submit the tax return statements for the last two years. There are other non-traditional mortgages for business owners or people who do not earn traditional income. If you have a commission only job you can only use it after 2 years. If you’re a salaried employee who also receives commission and overtime payment you can only use them after being on the job for two years. Anything before two years will lead to them using your salary only to qualify you.


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Dr. Paul Etienne is a financial and business consultant in Orlando, FL. Paul holds a Bachelor of Science degree, an MBA and a Doctorate in Business Administration with a concentration in Finance. He has worked for large, well-known financial firms throughout his career. Paul and his wife Vanessa share their home inCentral Florida with one extraordinary daughter named Delaney and a wonderful son named Vansley. Paul brings his longstanding experience and vast knowledge of the financial sector to his audience through his book, podcast, training courses and blogs, in which he aims to help as many people as possible with a wide variety of financial advice. He also blogs regularly on www.madbu.comon subjects ranging from personal finance, debt, budgeting, real estate investing, mortgages and retirement and more. In his free time, Paul likes to play the guitar and code, investing in real estate and helping others to become more aware of their finances. He is a lifelong student of all things and is always learning about new ideas.The future, as far as Dr. Paul is concerned, will see him helping more and more people to learn about managing their personal finance and assets, so that they can remain financially secure with the help oh his book and his budgeting app MadbuMax.