A mortgage pre-approval is a great bargaining tool when making offers on a home. It shows the sellers of the home you are ready and able to make the purchase and buy their home making your offer more competitive. A mortgage pre-approval letter is not a guarantee for financing; it states the lender has verified the necessary information such as credit, income and assets. And based on that information everything looks good so far.
If you a first-time buyer and someone who has been through the buying process before it is good to know what mistakes to avoid during and before the loan application process. These tips will help increase the likelihood of getting the loan pre-approval.
Not Knowing What is on Your Credit Report
You can get a copy of your credit report at no charge from the big three credit bureaus once every year at annualcreditreport.com. A credit check will be required to complete the mortgage pre-approval process.
The credit report will show all your accounts including credit cards and installment loans such as auto loans and a history of the payments you made on these accounts. They will also show negative items such as collections, late payments, recent bankruptcies and any financial mishaps you have had in the past; these may report on your credit report for seven years or more.
Moving Money from Account to Account
When a mortgage lender reviews your bank accounts, they are looking for key items such as large deposits or withdrawals or payments to creditors not listed on your credit report. The lender may require any large unusual deposit to be explained and/or require documentation to source where that money came from to confirm it is not a loan which could affect you qualifying for the mortgage loan.
For example, if you are getting a gift from a friend or a relative to pay for the down payment, then the lender would require a gift letter and documentation to support the transfer of money. The gift letter will also state that you aren’t required to pay back the money.
You are Ready for the Pre-Approval Process
Understanding what mortgage lenders are looking for will help you be ready when applying for a mortgage. Be sure to work with a qualified real estate agent who can guide you through every step of the process.