Before you start looking for houses with a real estate agent, it’s smart to first check if you qualify for a mortgage with a loan officer. Finding the right mortgage for your financial situation is the first step. Then, you need to learn how to prepare for getting that mortgage. A good place to start is by scheduling a meeting with a loan officer to get prequalified. Coming prepared to this meeting can make the process smoother and free up your time to focus on house hunting.
Mortgage lenders require a lot of documentation for approval. Providing as much of this documentation early on can reduce delays later. Understand what documents your loan officer needs and prepare them in advance for a smoother journey to closing your mortgage.
Let’s guide you through the steps to get pre-approved for a mortgage, which will put you ahead in your house hunting journey.
**Considering Finances**
You should have some money saved for the down payment on your home. Take a look at your savings—how much do you have for a down payment? Be careful not to use all your savings for the down payment, as there will be additional costs. Moving to a new home costs money, even if you don’t hire professional movers. You’ll likely need items from the hardware store and may have minor repairs or home improvements to make. These costs can add up quickly, so it’s smart to reserve some money for these unexpected expenses.
**How Much Can You Spend Comfortably?**
Before meeting with your loan officer, figure out the maximum mortgage amount you’re comfortable with. Even if your loan officer says you qualify for more, stick to your budget if you’re uncomfortable with larger payments. Remember, mortgage payments include not only the principal and interest but also mortgage insurance, homeowner’s insurance, and property taxes. Stay within your budget to avoid financial stress later.
The length of your mortgage term affects your payment amount. Traditional mortgages typically range from 10 to 30 years, with 30 years being the most common. Determine what loan term fits your budget. A 10-year mortgage will have higher payments compared to a 20-year mortgage. If you qualify for less than what the bank preapproves, you might be able to manage higher payments by shortening your mortgage term.
**Don’t Neglect Closing Costs**
Many people overlook the closing costs when getting a mortgage. Besides the down payment, these costs and the initial money for your escrow account can add several thousand dollars to your loan.
Closing costs include fees from the title company, appraiser, lender, underwriting company, and taxes. These fees add up quickly, usually around 4-5% of the purchase price.
**What You Need for Your Appointment**
To make sure your loan application process runs smoothly, bring the following documents to your meeting:
– Paystubs (last 2 months if you’re a W2 employee or commissions-based).
– W2s (last two years, with hire and termination dates for each employer in the last couple of years).
– Bank statements (last two statements).
– Tax returns (last two years).
– Retirement, disability, or social security income documentation (if applicable).
– Photo ID for verification.
Providing these documents early will streamline the approval process. Once your loan officer reviews your financial situation and credit report, they can issue a prequalification letter. This letter states the lending amount you’re approved for. Showing this to your realtor indicates you’re ready to view homes, and many experienced realtors require it before showing homes. When you place an offer on a home, this letter shows the sellers you’re serious, which is helpful if a bidding war starts. Having preapproval before finding a house puts you in a strong position compared to other potential buyers.