Want a Mortgage Loan? Get Pre-Approved!

Before you start looking for a home and make an approval, you need to get pre-approved by a lender. You will have to fill out a form that states everything financial about your life including the down payment you have, how much you owe on credit cards, student loans, auto loans, etc. The lender will examine your statements, check your credit report and approve or disapprove your application.

It is important to get pre-approved because most real estate agents will not show you any properties unless you have that letter. Getting a pre-approved letter will avoid all the hassle, lessen your closing costs and what's best, the process is free!
Note: Do not settle for a "Pre-Qualified" mortgage because that means nothing. You have to be pre-approved, not pre-qualified!

Pre-Qualified means the lender did not look at your income/expenses, credit scores and does not really know much about you. Therefore, he could reject your application at any time.

Here's a 7 step strategy to follow that will help you succeed at your mortgage application and get a good deal.

1) Get Your Credit Reports

You should look at your credit reports, before a lender does. The number derived from that credit report (also known as your credit score) plays a huge role in the interest rate you get on your loan, as well as the size of your mortgage loan. The lower your credit score, the higher your interest rate because banks will term you as a higher risk of default client.

You have the right to receive a free credit report once every year from www.annualcreditreport.com Check your credit report from all 3 major credit bureaus including Experian, Equifax and TransUnion. This is because each credit bureau has its own algorithm of calculating credit scores.
Note: You will not get your credit score from www.annualcreditreport.com If you want to know your credit score, you will have to purchase it from FICO @ www.fico.com. FICO was developed by the Fair Isaac Corp. and will rate your scale from 400 to 850. This FICO score is important because it is virtually used by almost any lender.

You can obtain your FICO score from www.myfico.com/Products/FICOOne/Description.aspx @ $15.95. With this, you'll get your credit scores from each of the 3 major credit bureaus (Experian, Equifax and TransUnion) with a detailed explanation of how they determine your scores. It will also provide tips on how to increase your credit scores.

2) Fix the Mistakes

The credit bureaus literally receive millions of pieces of information every day about consumer's buying habits, defaults and late payments. This makes them very prone to errors. Infact, 75% of all credit reports contain atleast 1 error. Therefore, it is advised to check every entry that appears on your credit report.
Note: If you are undergoing a financial difficulty for any reason including injury, disability, layoff or family crisis, write a statement and give it to your credit bureau. This can be attached to your credit report.

3) Gather your Documentation

Use our mortgage documents checklist to gather all your paperwork. You will need a copy of all your credit card debts, 401k retirement savings statements and proof of another assets you own to do this successfully. For example, although the lender will not ask to see your credit card statement, you will need this document to declare your credit card debt.

4) Choose the Right Mortgage

Use our mortgage type comparison chart to determine what type of mortgage is the best for your needs. You could choose from a 5 - 30 year term mortgage, a 7 year balloon mortgage, 5/5 & 5/1 year adjustible mortgage, etc.

5) Apply to your Lender

When you apply to your lender, you will be asked the following questions:

- Your current address, email, phone # and Social security #. If you have lived in your current address for less than 3 years, the lender will ask you where you lived before that. Also, if you're buying this house with your spouse or family, the lender will want to know their relationship with you.

- Do you currently live alone or with family? Do you rent or own?

- Your annual income

- Your dependents

- Your current occupation, how long you have been working for your current employer and past employment history

- Are you a first time home buyer?

- Assets you own e.g current home, checking and savings account, 401k retirement accounts, stocks, guaranteed investment certificates, etc.

- Your debts & liabilities

- Have you filed bankruptcy in the last 10 years?

- Are any of your debts delinquent?

- Are you buying a house for rental property (investment property) or to live in it?

6) Respond to Lender Queries, Provide Information

The mortgage pre-approval process can take days, weeks or even months. If your financial life is not too complicated, it could be approved within days. For example, if you have changed jobs 3 times in the past 2 years, have 10 credit cards, etc, the pre-approval process will obviously take longer. You might also be asked to provide a W2 form to prove your income.

7) Got Pre-Approved? Congratulations!

After steps 1-6, you'll get a pre-approval letter from your lender stating the total mortgage loan amount you can borrow, your interest rate as well as the type of mortgage you are approved for. You might get approved for a 25 year fixed mortgage term or a 5 year Adjustible rate mortgage.

Take this letter to your real estate agent and start looking for a house. You and your real estate agent know your mortgage loan limit, thus this will prevent you from falling in love with that $1 million home that you cannot really afford, yet.
Note: If your real estate agent insists you buy a house that is not within your mortgage loan limit, change your agent!

Pre-approval mortgage letters come with 30 day to 90 day limits. You must therefore close your mortgage deal within that time frame or else the lender will run another credit check on you and some of the steps will have to be repeated.