Expert Strategies for Securing Mortgage Preapproval: 13 Essential Tips
If you’re ready to dive into home ownership, there are several steps to prepare, and one of the first is getting preapproved for a mortgage. Preapproval is crucial because it gives everyone involved—lender, seller, and you—a clear idea of your monthly mortgage payments and other details.
For first-time homebuyers, understanding how to increase your chances of preapproval is essential. Here’s what experts suggest:
**Understand Your Debt-to-Income Ratio**
Realtor Kyle Ebersole explains that preapproval isn’t as daunting as it seems. A mortgage broker will look at your income and debts to calculate your debt-to-income ratio. This ratio is determined by your current income, existing debts, and the projected mortgage payment. Different lending programs have varying acceptable ratios, typically ranging from 30% to 56%. During the application, you’ll need to provide tax records, W2s or 1099s, pay stubs, debt payments, and bank account balances, and the lender will run a credit report.
**Eliminate Any Debts Possible**
Ebersole advises paying off credit cards, car loans, and student debt, or refinancing to lower monthly payments. Reducing monthly payments is crucial because the debt-to-income ratio is based on these payments.
**Don’t Finance Anything New**
If you’re planning to buy a house soon, avoid making new purchases on credit. Pay cash for items like cars or furniture. Even a small monthly payment can significantly impact your preapproval amount. Ebersole notes that a $200 monthly payment can reduce your preapproval by $40,000.
**Save as Much as You Can**
You’ll need to cover closing costs out of pocket, so the more cash you have, the better your preapproval chances. Lack of sufficient cash can limit your preapproval amount because you need enough to close the deal.
**Talk to a Lender Sooner**
Mason Whitehead, branch manager at Churchill Mortgage, suggests talking to a lender early if you have concerns about your credit or income. He often speaks with clients a year or more before they plan to buy, helping them budget, save, and improve their credit. If your credit is good and you have solid savings and job stability, start the loan process three to four months before you begin house hunting. A credit report is typically valid for 120 days, so this timeline is ideal.
**Know Your Credit Score**
Ryan Nelson, founder and CEO of RentalRealEstate, emphasizes the importance of knowing your credit score before starting the preapproval process. Your credit score will influence the interest rates and loan options available to you.