To get preapproved for a home loan, follow these key steps:
1. Check Your Financial Health
- Credit Score and History: Obtain your credit score and credit report to ensure accuracy and address any errors or delinquent accounts. A credit score of at least 620 is generally recommended, with 740+ qualifying for the best rates
- Debt-to-Income Ratio (DTI): Calculate your DTI, which is the percentage of your monthly income that goes toward debt payments. Lenders prefer a DTI of 36% or below, including the new mortgage payment
2. Gather Required Documentation
Prepare to provide comprehensive financial documents, including:
- Proof of income (pay stubs, W-2s, tax returns)
- Employment verification (employer contact or verification letter)
- Proof of assets (bank and investment account statements)
- Identification (driver’s license, Social Security number)
- Information on debts (credit cards, loans, support payments)
3. Apply for Preapproval
- Submit your financial information and documents to a lender or mortgage broker.
- The lender will perform a hard credit inquiry and verify your employment, income, assets, and debts.
- You may apply online or in person; some lenders offer quick prequalification with minimal documentation, while full preapproval requires detailed verification
4. Receive Loan Estimate and Preapproval Letter
- Within a few days, the lender will provide a loan estimate outlining potential loan costs.
- If approved, you receive a preapproval letter stating the maximum loan amount you qualify for, which strengthens your position when making an offer on a home
Additional Tips
- Get preapproved early in your home buying process to understand your budget and show sellers you are a serious buyer.
- Preapproval is conditional, subject to final verification and appraisal once you select a property
By following these steps, you can secure a home loan preapproval that helps streamline your home purchase process and improves your negotiating power.
