This is a guest post from Little Miss Moneybags
If you’re house-hunting, a mortgage pre-approval is a great thing to have in your back pocket. It shows real estate agents and sellers that you’re serious, and can help move the final home-buying process along much more quickly. Here’s an overview of how to get pre-approved, and what to expect along the way.
Preparation: Before looking for a mortgage broker, make sure there will be no surprises. Pull your credit report from all three agencies (along with your partner or spouse’s report, if you’re buying the house with another person). You can do this for free once a year at AnnualCreditReport.com, or you can pay a small fee to each agency for your report. You can also purchase your credit score along with your report, or look it up using CreditKarma.com or CreditSesame.com to get an estimate of what your score might be. (In my experience, these sites conservative, and therefore give you an estimate slightly lower than the official score, but of course your mileage may vary.)
Review your credit reports for any errors and get them corrected. Look for ways to improve your score. Have explanations for anything that looks unusual.
Start Shopping for a Broker: There are several ways to find a mortgage broker. You can visit a site like LendingTree.com and send your information to a number of mortgage brokers at once. You can visit a local lender, perhaps a bank you already do business with. Or you can ask around and get a referral to a broker who has worked with a friend or family member. If you already have a real estate agent lined up, they may be able to recommend someone too.
If you go the online route, consider using an alternate email address – one that you have access to, of course, but something other than your main account. You will get tons of emails (and phone calls) within a few hours of submitting your information.
Meeting with the Broker: In order to get you pre-approved, your broker will ask you for information such as:
- Recent pay stubs (at least two pay periods)
- Recent bank statements (checking, savings, CDs, etc)
- W2s or 1099s for the last two years
- Two years of federal tax returns, if you have been self-employed
- Paperwork relating to previous house sales, divorces, bankruptcy, etc.
You’ll also have to bring a check for the credit report, usually around $30 (this should be added on to the closing costs as a credit). You shouldn’t have to pay an application fee or any other fees at this time. (Also, since you’ve purchased this credit report and your score, you should get a copy of it!)
The broker will go over your paperwork and your credit report with you, and provide many forms for you to sign. Some of the forms will include details of the various loans which you qualify for. Two important things to notice at this stage: the maximum monthly payment that the lender is willing to give you, and the total out of pocket costs you will be expected to pay at closing. With those two numbers, and a pre-qualifying letter from the lender, you can use mortgage calculators available all over the web to determine how much house you can afford — and start shopping!