Welcome to the world of homebuying, where mortgage pre-qualification is like getting a learner's permit, and a preapproval letter is your official license to drive! Think of it this way: a pre-qual letter gets you started on the homeownership journey, but there are a few rules and limitations. However, with a pre-approval letter, you're cruising in the fast lane!
To get pre-approved, here's what you need to do:
Gather your personal information, including Social Security numbers, current address, and employment details for yourself and any co-borrower. Two years of continuous employment is usually preferred.
Check your credit score and review your credit history before the lender does. Fix any errors and pay off bills to boost your credit score.
Calculate your debt-to-income ratio (DTI) by adding up your monthly consumer debts like credit cards, student loans, and car loans. Don't include utilities and insurance. Divide that by your gross monthly income to find your DTI ratio.
Have proof of income ready, such as W-2 forms, 1099s (if applicable), and pay stubs. If you're self-employed, you'll likely need to provide tax returns for a couple of years.
Keep your bank, savings, and investment account information readily available.
Be prepared to show the source of your down payment. If it's a gift or from selling an asset, make sure you have the necessary documentation to prove it.
Reach out to multiple lenders. Some make it easy to apply online, while others provide personalized assistance. Working with different lenders helps you find the right financial partner for your unique situation.
Now, let's talk about the nitty-gritty of mortgage preapproval:
A pre-approval is based on credit, income, and assets. Yael Ishakis suggests aiming for a credit score of 700 or above, as it often leads to better mortgage interest rates. While there are programs available for borrowers with lower credit scores, they might come with higher interest rates. So, a good credit score is definitely advantageous.
But don't worry if your credit score isn't perfect! Lower credit scores don't exclude you from the homebuying game. Generally, it's recommended to keep your monthly debt obligations and proposed mortgage payment below a 43% debt ratio. Real estate professionals suggest aiming for a DTI target of 36% or lower and no greater than 43%.
However, keep in mind that a mortgage preapproval doesn't guarantee a loan. It's like having a cool ticket that shows sellers you have a solid credit history.
So, buckle up and get ready for the ride! A pre-approval letter puts you in the driver's seat, but there might be a few bumps along the road before you finally arrive at your dream home. Enjoy the journey!
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Rey Ramirez 832.639.4884
meet-rey@kw.com
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For inquiries, contact me whether you need help with home-buying, looking for a loan, or showings.
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