A mortgage is a loan acquired to purchase or maintain a house, building, or property, with legal terms of the agreement in which the title deed of the house is used as collateral, and ownership of the house becomes good upon failure to pay the loan.
A mortgage pre-approval is a situation in which there is no legal agreement in place, but a lender has looked through your finances, bank statements, credit cards, etc, and confirmed your credit trustworthiness, thereby agreeing(though with no commitment) to lend you a certain amount of money as a mortgage loan.
To get a pre-approval for a mortgage loan, the information you are required to provide include; copies of pay stubs that show your most recent 30 days of income, credit check, bank account numbers or two most recent bank statements, down payment amount, and desired mortgage amount, and signed, personal and business tax returns from the past two years. In short, lenders try every means to check up on your financial life and to make sure you can pay back their money, therefore they spend a lot of time in research and tests for total assurance. After this, the lender gives the buyer a pre-approval letter which exists for up to 120 days, since your finances might change.
It is good to always get a pre-approval letter a few months before getting a mortgage loan since it helps you to detect lapses in our finance and improve the credibility of your credit profile. This will put you in a better position to approach sellers, as well as be able to pay back the loan when due. Also, a pre-approval letter shows sellers you are serious and makes them more willing to sell to you, especially in a competitive environment.
What You'll Need When Applying for a Home Loan
- Applying for a mortgage sometimes can be stressful, the process can be quick or stretch out depending on the lender preapproving you and the complexity of your finances. First, you need to fill out a mortgage application. A mortgage application consist of;
- The amount of money you wish to apply for, the length of time to repay the loan, and the interest rate of the loan.
- The address of the property, and a proper description of the property. Also the purpose of the loan-construction, repair or refinance, and the intended type of residency; primary, secondary, or investment.
- Information such as can be used in identifying the borrower; the full name, date of birth, Social Security number, years of school attended, marital status, number of dependents, and address history.
- The name of previous and current employers, title, and monthly income.
- Your combined monthly income includes bonuses, commissions, overtime, and other types of monthly income such as alimony. Also, your combined monthly housing expenses include rent, taxes, and dues.
- A list of all your assets and your bank statement will prove you can pay for the down payment and closing costs, while still having reserves. Also, you need to list all your liabilities which include loans and other outstanding debts.
- An overview of the key details of the transaction including the loan amount, down payment, closing costs, etc.
- An inventory of any judgments, liens, past bankruptcies or foreclosures, pending lawsuits, or delinquent debts.
After filling this in, the lender will send you a document that notes whether your application was approved or not