How to get Pre-Approved for a Mortgage

Prior to hitting the market and checking out listings, you should take care of a few important tasks, including saving up plenty of money for a new home, enhancing your credit score, and getting pre-approved for a loan.

1. Evaluate your financial standings before applying. If you plan on using a VA loan, have a lower credit score, need a construction loan, are self-employed or commission-based and don’t have two years of tax returns, or any other unconventional situation, then you will want to make sure that you are using a lender who can qualify you under your conditions. Don’t apply to be pre-qualified until you are positive they can. If you are need help identifying your situation, reach out to me!

2. Choose a lender. A quality lender is essential to the home-buying process. You’ll want to use someone who...

   • is trustworthy, experienced, and organized

   • will coach and guide you toward the right choice, even if that means postponing the purchase process until you’ve increased your credit score or saved more money.

   • offers competitive rates with a low loan origination fee...

   • has loan programs beneficial for your unique situation

3. Determine your loan type. Your lender will also help guide you toward the loan program that’s right for you. There are a variety of loan types available. They all fall under the following programs:

   • Conventional —

   • FHA —

   • USDA —

   • VA —

     • any loan that is not insured or guaranteed by the federal government.

     • Minimum of 680 credit score

     • At least 3% or 5% down (depending on your job history & credit score)

     • Don’t have as strict of guidelines on the property’s condition

     • If you put down less than 20%, mortgage insurance falls off once you reach 80% loan-to-value

     • Seller can only contribute up to 3% of Purchaser’s closing costs (if they are willing)

       • Conventional loans-

         • any loan that is not insured or guaranteed by the federal government.

         • Minimum of 680 credit score

         • At least 3% or 5% down (depending on your job history & credit score)

         • Don’t have as strict of guidelines on the property’s condition

         • If you put down less than 20%, mortgage insurance falls off once you reach 80% loan-to-value

         • Seller can only contribute up to 3% of Purchaser’s closing costs (if they are willing)

         • FHA loans

           • Easier qualifying guidelines

           • Roughly need a 640 credit score to qualify with most lenders. Direct lenders can qualify some buyers at 600

           • 3.5% down payment

           • Seller can only contribute up to 6% of Purchaser’s closing costs (if they are willing)

         • USDA loan— “Rural Development”, “RD”, or “First Time Home Buyer”

           • Minimum 640 credit score

           • No down payment

           • Must not exceed income-eligibility

           • Property must meet all program criteria & be in a rural-development area

           • Seller can only contribute up to 6% of Purchaser’s closing costs (if they are willing)

         • VA loan— Veteran’s Affairs for veterans or active duty who meet program guidelines

           • 0% Down

           • There is not a “cap” on the amount of closing costs a seller can cover on behalf of the Purchaser.

     • While the loan types above are the most commonly used, there are also a variety of other loans for specific circumstances. There are refinancing loans, construction loans, bank loans, investment loans, etc. Your lender will help you decide which loan is best for you.

   What will determine how much I’m qualified for?

   • Credit score: determines your loan type

     • 720+ Conventional loan with lower MIP

     • 680-719 Conventional loan

     • 640+ FHA, USDA, & VA

     • 600-639 May qualify for an FHA loan with a higher interest rate

   • Debt-to-income ratio: determines your loan type AND purchase price amount

     • Calculated by your monthly income (before taxes) and monthly debts income

     • Debts owed include your minimum payment due on credit cards, installments on auto loans, etc.; this will not include utility bills or other accounts that do not reflect onto your credit report.

     • Most lenders require that your debt-to-income ratio be between 25-28%. Then, in order to calculate your qualifying price range, they will calculate the total amount of debt you’d be able to afford in order to stay below the maximum debt-to-income ratio. This is known as the “back end ratio” and includes an estimated monthly payment in addition to your total existing debts. They require it to be below 41-45%; however, these ratios aren’t carved in stone. Sometimes, lenders approve those who are extremely close to the qualifying ratio.

   • Employment history