How to get a mortgage preapproval
When buying a house, a mortgage preapproval letter is one of the most valuable tools you can have. Learn how to get preapproved for a home loan and why you should.
In the realm of purchasing a home, having a mortgage preapproval stands out as a crucial asset. Discover the reasons for obtaining one, the process to secure it, and how to employ it wisely.
Video Transcript: How to Get a Mortgage Preapproval
- Video duration: 2 minutes 10 seconds
How a Preapproval Will Aid Your Home Buying Process [Elapsed Time 00:00]
Where do you start when beginning your home buying search? A great place to start is to get a mortgage preapproval from your lender. Let's see why this is important.
When a lender issues you a mortgage preapproval, you can start your home-shopping with confidence.
The Importance of Getting Preapproval [Elapsed Time 00:22]
Buyers aren't the only ones who value preapprovals. Sellers like them too, since they help remove doubts on buyers obtaining the financing they'll need to make good on their offer. Because of that, a preapproval can give you an edge, especially in situations where the seller has received multiple offers.
The Role Your Credit Report Has in the Preapproval Process [Elapsed Time 00:38]
To obtain a preapproval, you'll be required to complete a detailed application. Check your credit before submitting your application to see if you need to make any adjustments. The stakes are high: Your credit doesn't just determine if you can borrow and how much—it also drives the interest rate on your mortgage.
You're entitled to a free copy of your credit report once a year from each of the three major credit rating agencies. You can request them at annualcreditreport.com.
Preparing Your Bank and Tax Statements for PreApproval [Elapsed Time 01:06]
Your lender will also want to see proof to back up what you entered on the application. For example, you may be asked to provide proof of your employment and salary, as well as, tax records and bank and investment account statements.
The Importance of Not Adding Debt After Preapproval [Elapsed Time 01:18]
Don't demolish your preapproval by taking on new debts or making major purchases that draw down your assets.
The Importance of Not Maxing Out Your Budget [Elapsed Time 01:25]
Think toward the future. Set your own home purchase limit based on a monthly mortgage you can comfortably afford, considering other current and unexpected life events. Though your lender may approve you to borrow a certain amount of money avoid maxing out your preapproval budget.
The more you borrow, the higher your mortgage payment and the more interest you'll pay over time.
Keeping Room in Your Budget for Other Costs [Elapsed Time 01:45]
A larger home could also mean more money spent on furnishings, décor, maintenance, property taxes and insurance.
You may also want to pursue other financial goals, such as saving for retirement, building a college fund, and leaving room for future purchases.
We hope that you found this information to be helpful.
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The basics
When a lender issues you a mortgage preapproval, you can start shopping with confidence.
Buyers aren't the only ones who value preapprovals. Sellers like them, too. They help remove doubts about whether a buyer can actually get the financing needed to make good on their offer. Because of that, a preapproval can give you an edge, especially in situations where the seller has multiple offers.
Check your credit before they do.
Before your lender has a look at your credit score and history, it's a good idea for you to take a look first since the stakes are high. Your credit doesn't just determine if you can borrow and how much, but also the interest rate you'll get.
You're entitled to a free copy of your credit report once a year from each of the three major credit rating agencies. You can request them at annualcreditreport.com.See note1 You may find unpaid balances you didn't even know about, such as the charge for the last few days of your electric bill at a previous home. You may also find errors you can correct before lenders see them.
Understand the preapproval process.
To get preapproved, you'll need to complete a detailed application, during this your lender will look at your credit score and history. Even after you're preapproved, you're not completely out of the woods. Your approval is based on the financial condition you present at the time of the final mortgage decision. Bottom line: While you're in house-hunting mode, don't demolish your preapproval by taking on new debts or making major purchases that draw down your assets.
Set your own credit limit.
Though your lender may preapprove you to borrow a certain amount of money, that doesn't mean you should use that amount as your house budget.
To put it another way, the amount of your preapproval is a ceiling, not a target. The more you borrow, the higher your mortgage payment and the more interest you'll pay over time. A larger home could also mean more money spent on utilities, furnishings, décor, maintenance, property taxes and insurance.
Another reason to avoid maxing out on your preapproval is so you'll be in a better position to pursue other financial goals, such as saving for retirement, building a college fund and leaving room for future borrowing, such as a car payment.
The USAA Advice Center provides general advice, tools and resources to guide your journey. Content may mention products, features or services that USAA Federal Savings Bank does not offer. The information contained is provided for informational purposes only and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates. All information provided is subject to change without notice.
