So, you have been scrolling through online listings for your dream house. Home-buying is lengthy and challenging, so it is important to have an Orlando realtor by your side to assist you until the very end. The one thing that can delay the proceeding is the pre-approval letter. It’s a non-binding document that tells the seller how big of a loan you can afford.
The lender provides the pre-approval letter after looking at your financial documents. Pre-qualification, on the other hand, helps you establish a realistic budget. It’s just an invite from lenders informing you that if you apply for a loan, chances are high that you might get past the first approval stage.
Now that you know the basics of a pre-approval letter, let’s take a look at how to obtain it:
Gather Your Financial and Personal Documents
You are probably pre-qualified by several lenders. Check your email to see if you have received any messages. This step will help you narrow down your search. Before approaching them, you will have to collect all your financial documents. Remember: The lender will make a hard inquiry into your credit report to determine how responsible you are with your money.
Here are the documents you need to gather:
- Proof of income
- Pay stubs (From the last 30 days)
- W-2s (From the last two years)
- Account statements
- Documents containing details of your current loans
- Letter from the person who is giving you the down payment as a gift
- Details of any previous foreclosures
- ID (Passport or driver’s license)
Get a Copy of Your Credit Report
Knowing your credit score and credit report will allow you to determine how much your monthly payments will be. Here’s an example to help you understand how credit score affects interest rate for a $350,000 mortgage:
| FICO® score | APR [?] | Monthly Payment |
|---|---|---|
| 760-850 | 6.574% | $2,229 |
| 700-759 | 6.796% | $2,281 |
| 680-699 | 6.973% | $2,322 |
| 660-679 | 7.187% | $2,373 |
| 640-659 | 7.617% | $2,475 |
| 620-639 | 8.163% | $2,608 |
Click here to calculate yours based on current rates.
Calculate Your Debt-to-Income (DTI) Ratio
Your DTI helps you determine how much of your monthly income is spent on debt, such as paying for car loans, student loans, and credit cards, and how much you are saving. Typically, lenders prefer a DTI below 36%. It tells them you are good at maintaining your finances.
Choose a Lender
With all the documents in place, choosing a lender is time. Finalize three and choose one that offers a desirable interest rate at a small fee.
Nowadays, the pre-approval process has become relatively easy. You can contact an online lender and receive a pre-approval letter within 3 to 5 business days.
You can inform your real estate agent to schedule open house visits with the pre-approval letter. Visit the Megan Dowdy Realty website to contact a qualified Lake Mary realtor. For more information, call 407-509-9279.
