How to Get Preapproved for a Home Loan
What does it mean to be preapproved? How do you do it? What can you do to improve your chances? Knowing how to get preapproved for a home loan will put you in the driver’s seat and give you more confidence as you navigate the mortgage application process.
The Benefits of Preapproval
When you get preapproved, the lender issues you a letter that says they’re tentatively willing to approve you for a loan for a certain amount with specific terms. It’s not a guarantee that you’ll actually get a mortgage, but it is a strong starting point. As Credit Karma explains, it also has several benefits:
- It provides you with an idea of how much you can borrow, which gives you an idea of how much you can afford to spend on a home.
- It tells real estate professionals and sellers that you are a serious buyer.
- The process can uncover potential problems in your loan application. This gives you a chance to work on fixing them before you have a property purchase on the line.
- It can reduce the time needed to complete the actual mortgage application. Much of the information from the preapproval will transfer over.
The Preapproval Process
How do you get preapproved? Investopedia offers a step-by-step guide:
- Gather your documentation. The exact mix of documentation that you’ll need to present will depend on your financial situation. Your lender will need a driver’s license or U.S. passport and your Social Security number. Generally speaking, borrowers should be prepared to hand over W-2 tax returns for the last two years, income tax returns, 30 days of pay stubs, 60 days of bank statements, and asset account statements. If your financial picture includes alimony or child support, a copy of your divorce papers may be required. When your down payment includes a financial gift, you’ll need a gift letter.
- Fill out an application. The standard application form has questions about the loan type, the property, the borrower, the borrower’s employment, their income, and their assets and liabilities. It also has a section for transaction details and declarations. Some of these sections won’t come into play until you settle on a specific property. Your lender can guide you through the application process.
- Get your results. It can take anywhere from a few hours to a few days to get your results. The timing depends on your lender and the complexity of your application. As for the result, you may be denied, preapproved with conditions, or preapproved. If you’re denied, you should receive an explanation. If you’re preapproved with conditions, you may need to provide extra documentation or fix something before your application can be fully approved. If you’re approved, the lender will give you a preapproval letter.
Improving Your Preapproval Chances
Are you concerned that you might not be preapproved? U.S. News & World Report offers some suggestions for how to improve your chances of being preapproved:
- Polish your credit report. Scour your credit report for any errors. If you find any, request corrections. A higher credit score will win points with lenders, so make sure that yours is the best it can be before you apply.
- Pay down debts. Debt is one of the elements that lenders weigh as they decide how much you can borrow. It also influences your credit score. Paying down your debt can put you in a stronger position when you apply for preapproval.
- Save. Stashing cash in your savings gives you more options when you’re ready to buy and makes you a better candidate when you’re ready to seek preapproval.