Mortgage Pre-Approval / Approval

Mortgage Pre-Approval is a letter provided by a mortgage professional which shows you what you can afford to spend and what your monthly payment will look like. A pre-approval differs from a pre-qualification because a pre-approval means you have a conditional commitment by a lender for a specific loan amount.

A mortgage Pre-Approval letter from a lender assures you, sellers and real estate agents that you have the ability to a complete the purchase of any home that meets the lender’s guidelines.

You give your lender information and provide supporting documents as evidence. They will run a credit check and confirm the information you supply to provide an estimate of your borrowing limit.

  • Application -  Required Documents - To secure a mortgage pre-approval, you must complete a mortgage application and submit all required documents. These can include (but are not limited to):​​

    • Social security number

    • Proof of employment

    • Last pay stub(s)

    • W-2, 1099, or other income tax forms

    • Pay stubs and W-2s (typically two years)

    • Tax returns (typically two years if self-employed or you earn commissions or bonuses)

    • Bank, retirement and investment account statements (two to 12 months, depending on loan)

    • Financial statements (if self-employed)

    • Letters of explanation for credit blemishes

    • Divorce decrees, if you pay or receive spousal or child support

  • 3 Factors Influencing Loan Approval - Once you provide a mortgage professional the documents, you might be wondering what they're looking for to approval a loan. These are the 3 Factors they're evaluating from the documents you've submitted:

    • Willingness to pay back the loan

      • Refers to your credit history or a measure of your ability to pay your consumer debt

      • Each individual is given a credit score ranging from 400 to 850 from one of the credit reporting agencies based on this history

      • An individual’s credit score is a key determinant in influencing loan approval

    • Ability to pay back the loan

      • Front Ratio = monthly housing payments/gross monthly income (should be <30%)

      • Back Ratio = total monthly debt obligations/grow monthly income (should be <40%)

    • Appraisal or Appraised value of the property - This part is not part of the pre-approval evaluation. This is the third factor that a mortgage company will evaluate to determine whether they will approve a long for the property you've decided to purchase.

      • An independent appraiser is hired to complete a full appraisal and submit it to the lender for review

      • Appraiser uses a comparable analysis to arrive at the value of the property

      • The appraiser’s evaluation of the property being financed must report a value greater than or equal to the purchase price

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