What to do before trying for a home loan pre-approval

Getting pre-approved for a mortgage will assure a buyer of your financial stability and make it easier for you to purchase a home. Though pre-approval is itself a preliminary step in the home buying process, you need to make sure you are well-prepared for this step before you go to meet with a lender.

Michele Lerner, writing for Investopedia, says potential buyers can first pre-qualify for a mortgage after meeting with a lender. This step gives you an estimate of how much you'll be able to spend on a home, while pre-approval means the lender has verified your financial resources and approved you to borrow a certain amount. Final approval happens after an appraisal is done on the home and you get the mortgage for this property.

While the pre-qualification can help you determine how much you'll be able to spend on a home, you can also look over your own finances to estimate how much you'll be able to pay each month. Don't forget to factor in costs such as property taxes and homeowner's insurance.

Charles Davis, writing for the financial site WalletHub, says you can also contact lenders before meeting with them to find out what their pre-approval process is. You can arrange to meet a lender in person or you can use online resources before arranging a formal meeting.

Before going in for a pre-approval, the key thing to do is arrange all of your financial documentation. This is the information a lender will need to review in order to determine your reliability as well as how much of a mortgage you can afford.

Pull up your credit score. Lerner says borrowers with lower credit scores will have more difficulty getting approved for a mortgage, since you'll have to meet requirements such as a larger down payment. You'll also have to meet a certain threshold to qualify for a Federal Housing Administration loan or for the lowest interest rates.

If there is anything on the credit report that you think is unfairly dragging your score down, contest it before going in for pre-approval. You might also consider taking the extra time to pay down debts or otherwise improve your credit score if it is low enough to compromise your chances for pre-approval.

Find your W-2 tax forms for the past two years to show proof of your employment and earnings. If you are self-employed, use a year-to-date profit and loss statement.

Make sure you have enough money for a down payment on hand. This may require transferring money from a certificate of deposit or other accounts. Ideally, any large sums of money gifted to you will have some proof that they were given with no expectation of repayment. As with the credit score, you might need to save up for a longer period of time if you don't have enough money to meet the required percentage of the home price.

If you have been renting, get the past 12 months of receipts for your checks or money orders to show that you have been paying your rent on time. You can also ask your landlord for a letter of reference.

Gather together all other information on your financial holdings. These might include IRAs, stocks, and other property. If you have previous financial issues, such as bankruptcy, write out an explanation of this situation.

You'll also need some forms of identification to present to the lender. A driver's license, passport, or other government-issued form of identification will work.

You should make sure your financial situation remains stable prior to your meeting with the lender. Switching jobs might give them pause, as will taking on new debt, applying for a new line of credit, or asking a creditor to lower your limit.

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