When you’re ready to purchase a home, your first step is to work with an LW Reedy real estate professional. Your next step should be to get preapproved for a mortgage loan. It’s important to get preapproval before you officially start shopping for a home. There are two main reasons to seek mortgage preapproval.
Know your max.With a preapproval letter in hand, you’ll know exactly how much money a lender will allow you to borrow. Keep in mind that just because you get approved for $X, you do not have to buy a home to maximize your loan. You can buy a less expensive home and take out a smaller mortgage.
Reassure home sellers. A loan preapproval letter is important when you submit a purchase offer. Home sellers see a mortgage preapproval letter and have confirmation your financing is settled and you will likely not have problems getting to the closing table. If there are multiple purchase offers, your offer could rise to the top because of the preapproval letter.
The timeline
After you complete a mortgage loan application, the loan preapproval letter can take just a day or two to be issued to you by the lender. It is often valid for 60 days or more. If your home search takes longer than expected, renewing your letter with the lender is not an issue if all elements of your finances have remained the same.
Remember too, that a loan preapproval letter from a specific lender doesn’t tie you to that lender. So if you continue to lender shop and decide to work with a new lender, the preapproval letter is non-binding.
If you’d like a referral to a lender, contact LW Reedy and we can direct you.
What you’ll need
You’ll first complete the mortgage loan application. Keep in mind that the mortgage loan application is a document you should spend some time on. Do not rush. Gather all documents to confirm information before filling out the application. Providing false information on a mortgage loan application is a federal felony, so it’s best if you double check information before filling out the form.
Get data
To apply for a home loan, you’ll provide your personal info including:
Your name (and other names you may have used)
Current address (and previous addresses for the past two years)
Phone numbers
Email address
Social Security number
Work name and address (for at least the past two years), salary, and title
Income sources
Bank account info and balances
Open credit cards and balances
Loans (student, auto, mortgage, personal, etc.) and balances
Other debt totals
If you will rely on income from other sources such as alimony, child support, legal settlements, etc. you’ll need to provide supporting documentation for that as well.
If you have gone through bankruptcy you’ll need the discharge papers. If you are divorced, you’ll need your divorce decree. And if you are applying for a VA loan, insured by the Veteran’s Administration, you’ll need your VA eligibility form.
Gather documents
You’ll also need some specific documents to apply for a home loan. Many lenders allow you to upload photos of the documents through their app, so it’s convenient. Here are items you may need to provide:
Your drivers license or state ID
Copies of your paystubs and W-2 statements from your employer, or 1099 statements, if you’re a contract worker
Bank account statements
Investment account statements
Tax returns from the past two years
Most of these documents you can download online to share in the app or grant direct access to your lender from the app.
Signatures
You’ll sign and date your application and you will give authorization to the lender to check your credit and obtain your credit score.
Other borrowers
If you are obtaining the loan with your spouse, partner, or another person, that other individual will need to provide the same information on the application.
Keep in mind that mortgages do not need to be held in both names, so if the two of you have very different credit scores, you may consider only the higher credit score holder to take out the mortgage. Confirm that the single applicant can get approved for the loan using only their income.
What lenders are looking for
All lenders want to ensure you can afford your new mortgage payment. Most lenders are looking for these elements on your mortgage loan application:
Steady employment
Verifiable income
Credit reports that confirm you pay your bills on time
A credit score that reflects good credit habits (the higher your credit score, the lower the interest rate you’ll qualify for)
The least amount of debt overall
Ratio of debt related to total credit limit that is typically under 30%
Sizable savings for down payment and financing fees
Emergency funds to cover expenses in case of job loss
If you are lacking in a few of these areas, lenders may still consider your application. If you are lacking in all of these areas, lenders may reject your application.
If you’re thinking of buying a home soon, start working on good financial habits now. Pay all your bills on time. Eliminate as much debt as you can or reduce balances. Refrain from opening up new credit cards or taking out other loans. Continue to save money.
The actual preapproval letter
If the lender approves your application, your preapproval letter will outline:
The maximum mortgage loan amount
Estimated interest rate
Loan term (15, 20, 30 years for fixed-rate mortgages, shorter for adjustable-rate mortgages)
The lender’s name and the loan officer’s name and contact information
Expiration date of the preapproval letter
Your next steps
With the preapproval letter in hand, you’re ready to go home shopping. Contact an LW Reedy agent, and get touring!
PRO TIP: When you tour multiple properties, it’s often difficult to keep track of the details of each. You’ll want to assess homes on more than just price, so go to each home tour with your notes app open to jot down your thoughts, or send yourself voice notes as you walk around the home. Don’t forget to take photos and videos as you tour. You may want to share the images and videos with family or friends to get their input as well.
When you’re ready to make a purchase offer, our expert real estate pros will craft an offer to get the seller’s attention. An LW Reedy real estate professional’s experience and negotiation expertise will help you succeed in buying a home for the best price and terms.
Questions?
Buying a Chicago-area home is often one of the biggest financial transactions of your life. Don’t go it alone and don’t entrust just anyone with this important financial move. LW Reedy is here to help and can answer any questions you have about the homebuying process.
Share the info
If you learned something about getting preapproved for a home loan, be sure to share this blog post with your neighbors, friends, and family who plan to purchase a home soon. We’d also love to help those who might be buying or selling a home in the Chicago area this year.
LW Reedy is Elmhurst’s local real estate resource for 75 years and counting. Rely on us for useful, practical real estate information. Please contact us with your real estate questions. We are here to help!
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For more information about buying, selling, renting, and maintaining your home in the Chicago area, contact your LW Reedy real estate agent.
