How to Prepare for a Mortgage Application: Key Steps for Success

Applying for a mortgage is time-consuming. Many steps are involved in the process. However, the process isn’t as overwhelming when someone knows these steps and how to complete each successfully.

Prequalification or Preapproval?

Prequalification and preapproval are two different things when applying for a mortgage. When a mortgage lender prequalifies an individual, they quickly determine whether they are eligible as a borrower. To do so, the lender collects basic information about the person’s finances. However, no documentation is required.

Individuals who get preapproved for a mortgage go through a comprehensive application process. The lender completes a credit check and verifies and analyzes the potential borrower’s financial situation. Documentation is required to complete this process. If the lender approves the borrower, they provide a written letter stating that the borrower qualifies for a specific loan amount. However, the loan must still undergo the underwriting process.

Borrowers should always complete the preapproval process. It shows that they are serious about buying a home. Today, many sellers refuse an offer unless it comes with a preapproval letter from a lender.

The Application Process

Before requesting preapproval for a loan, a borrower should gather the necessary paperwork. They need a minimum of two recent pay stubs showing income year-to-date. Federal tax returns from the prior two years and W-2 forms from the same period are required. The lender will also want to see where the funding for the down payment is coming from and recent statements for all bank accounts and Investments accounts. Lenders will also need the borrower’s residential history from the prior two years. Landlord contact information and statements of any additional real estate holdings must be provided. Lenders may also require further documentation.

Self-employed individuals often must provide additional documentation. The lender may require business tax returns for the prior two years and a profit and loss statement. They may wish to see the business license, a year-to-date balance sheet, and other documents.

Getting Preapproved

Potential borrowers should plan for the preapproval process. Getting preapproved may take as little as 24 hours or 10 days or more.

Fortunately, once the borrower receives this mortgage preapproval, it is good for 90 days in most cases. If finding the right property takes longer than 90 days, most lenders will allow a borrower to provide updated account statements to have the preapproval extended. However, if the borrower chooses to go with another lender, they must complete the process again.

Shopping for a Lender

Borrowers may hesitate to shop for the Ideal lender, mortgage terms, and credits. They worry that getting preapproved for multiple lenders will harm their credit score. Fortunately, credit checks from multiple lenders will only impact the credit score once. Multiple credit checks appear as one inquiry if completed within the same 14-day period.

Approval is only part of the process. Once a borrower compares several loans and finds the right property, they must choose and finalize a loan. Contact the lender and let them know that a property has been found. Confirm the purchase price and address of this property. Discuss the down payment and final loan amounts and confirm that the financial situation remains unchanged. The lender may desire additional documentation. However, they work with borrowers daily and can walk a person through the process to ensure it is completed quickly and successfully. Soon, this individual will be the proud owner of a new residence they love.

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Carlson Magnase

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