From Credit Check to Closing: A Step-by-Step Guide to Mortgage Pre-Approval

If you're ready to embark on your homeownership journey, getting pre-approved for a mortgage is an important first step. Pre-approval gives you a clear understanding of your budget and shows sellers that you're a serious buyer. In this guide, we'll walk you through the process step by step, including the necessary credit pull and documentation.

Step 1: Check Your Credit Score

Begin by checking your credit score, as it plays a significant role in determining your eligibility for a mortgage and the interest rate you may qualify for. You can obtain a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) annually. Review the report for any errors and address them promptly.

Step 2: Calculate Your Debt-to-Income Ratio

Determine your debt-to-income (DTI) ratio by dividing your total monthly debt payments (such as credit cards, loans, and other debts) by your gross monthly income. Most lenders prefer a DTI ratio of 43% or lower, although some may accept higher ratios with compensating factors. Lowering your DTI ratio can improve your chances of getting pre-approved.

Step 3: Gather Documentation

To support your mortgage pre-approval application, gather essential documents such as:

• Copy of your Valid ID (Driver’s License, Passport, Green Card, etc) – a screenshot of LA Wallet ID works well if applicable.

• Paystubs covering the most recent 30-day period and listing the year-to-date total (YTD)

• Most recent 2 years W2’s

• Most recent 2 years signed/filed Federal Tax Returns (all pages/schedules)

• 2 months’ most recent bank statements—all pages – and as we go through the loan process, please continue to send new bank statements upon receipt.

• Current Mortgage statement(s)

• Human Resource contact info at current employers

Step 4: Research Lenders

Take the time to research different lenders to find the one that suits your needs. Compare interest rates, fees, and customer reviews to make an informed decision. You can consider various types of lenders, including banks, credit unions, mortgage brokers, or online lenders.

Step 5: Apply for Pre-approval

Once you've chosen a lender, it's time to apply for pre-approval. Fill out the application form provided by your chosen lender and submit it along with the required documentation. The lender will review your application, pull your credit, and analyze your financial situation.

Step 6: Await Pre-approval Decision

After reviewing your application, the lender will issue a pre-approval decision. If approved, they will provide a pre-approval letter stating the loan amount you are eligible for. Keep in mind that pre-approval is not a guarantee of final mortgage approval but serves as an indication of your borrowing capacity.

Step 7: Continue the Mortgage Process

Congratulations on receiving your pre-approval! However, remember that pre-approval is just the beginning. Now, you can confidently start house hunting within your budget. When you find the perfect home, you will need to complete the mortgage application process, including providing additional documentation and going through underwriting.

Remember, obtaining pre-approval is an important step in your home buying journey, but it's always best to consult with a mortgage professional for personalized advice and guidance. They can help you navigate the process, answer any questions you may have, and ensure you make informed decisions along the way.

Are you ready to take the next step toward homeownership? Reach out to us today to get started!