Buying a home is likely to be one of the biggest purchase that you make in your life. You’ll also probably need a mortgage loan to make it happen. Obtaining a mortgage preapproval is essential if you want to start the process of buying a home.
By obtaining a mortgage preapproval, you show sellers that a lender has already verified your eligibility and is willing to lend you money. To help you take that critical first step, here is what you need to know about a mortgage preapproval.
A mortgage preapproval is a statement issued by a lender that outlines the exact amount of money a lender is willing to let you borrow to pay for a home. A preapproval is based on how much cash you have in your bank accounts, your income, any financial obligations you have, how much and the type of debts you owe, and your overall financial situation.
A lender will perform a hard credit inquiry. They will also ask you to share detailed financial information about your income and debts. Some of the documents the lender will request include:
If you are self-employed, you may also be required to include information from your business accounts as well as have an audit of your business income.
Since a mortgage preapproval requires an in-depth analysis of your financial situation, it is essential that you work on improving your credit first.
Before you apply for a mortgage preapproval, check your credit report and review it for any mistakes. Resolve any errors that you find and work on improving your credit score overall to ensure that you qualify for the best mortgage rates.