How to Get Preapproved for a Mortgage
If you're thinking about buying a home, getting preapproved for a mortgage is an essential first step. In this comprehensive guide, we walk you through the process, from understanding what preapproval means to gathering the necessary documents and finding the right lender for your needs.
What Is Conditional Approval?
A conditional approval is a written verification from a lender that you qualify for a mortgage. It's based on a review of your credit history, credit scores, income, and assets. A conditional approval shows sellers you can afford to buy a home and gives you an idea of how much you'll pay monthly and at the closing table. Regardless of whether you've obtained conditional approval, you KeyBank's Mortgage Affordability Calculator to estimate a comfortable loan and payment amount.
What Is the Difference Between Prequalification and Preapproval?
Prequalification is an informal assessment of your finances to approximate how much you might afford. Preapproval is more formal and involves a thorough audit of your credit and financial background, resulting in a specific loan amount you're approved for.
4 Steps to Get Preapproved for a Mortgage
Getting preapproved for a mortgage is a crucial step in the home-buying process. It shows you how much you can afford and shows sellers you're a serious buyer. Here's a step-by-step guide on how to get preapproved for a mortgage:
Step 1. Check Your Credit Score and Report
- Obtain a free copy of your credit report from all three major credit bureaus.
- Review your report for errors and ensure your credit score is in good standing.
- Take steps to improve your credit score if necessary, such as paying down debt and resolving any discrepancies.
Step 2. Gather Financial Documents
- Collect necessary financial documents, including recent pay stubs, W-2 forms, tax returns for the past two years, and bank statements.
- If you're self-employed or have nontraditional income sources, gather additional documentation to verify your income.
Step 3. Research Lenders and Apply for Preapproval
- Explore different mortgage lenders and compare their rates, terms, and fees.
- Choose a lender that offers favorable terms and suits your needs.
- Complete the preapproval application, providing accurate and detailed information about your financial situation.
- Be prepared for the lender to conduct a thorough review of your finances, including a credit check and income verification.
Step 4. Receive Preapproval Decision and Letter
- After reviewing your application, the lender will make a preapproval decision based on factors such as your creditworthiness, income, and debt-to-income ratio.
- If approved, you'll receive a preapproval letter outlining the loan amount you qualify for, the interest rate, and any conditions or contingencies.
- This letter demonstrates your financial credibility to sellers when making offers on homes.
- If denied, it’s important to contact the lender to understand why your finances don’t meet their preapproval criteria, work to improve your financial situation, and consider applying with other lenders.
By following these detailed steps, you can navigate the preapproval process effectively and position yourself as a strong candidate for obtaining a mortgage. Remember to stay informed, be proactive in addressing any financial issues, and choose a lender that aligns with your goals and preferences.
Frequently Asked Questions
Have more questions about conditional approval? We’re here to help! Read the following answers to help ease this step of the home-buying process:
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