Last Updated on: 29th January 2023, 05:40 am
The mortgage approval process can be overwhelming, but understanding the requirements and qualifications can make it less stressful. In this post, we’re going to deep dive into the details of how to get approved for a mortgage loan.
Whether you’re a first-time homebuyer or looking to refinance, this information will be valuable in helping you go through the whole process of your mortgage loan application.
Let’s be direct and go straight to the first question.
What documents does someone need to get approved for a mortgage loan?
The following documentation will be needed by the lender in order to get approved for a mortgage loan:
- Identification: Normally this will be a government-issued ID such as a driver’s license or passport.
- Past two years of your 1040 Tax Return: to show your income along with other itemized deductions
- Two years of your W2s: This is a document that you’re employer gives you at the end of the year showing you how much you made, either on wages, commissions, overtime, tips, etc.
- 1099 Tax Form: Used to report income received by a person who is self-employed
- 30 days of your pay stub: If you getting paid biweekly, you’ll then need two pay stubs to show
- Two months of bank statements: The Underwriter will look at this document to ensure that you have enough money to make the down payment, pay for closing costs, and still have some funds remaining. They will also check for any indications of borrowed money used to purchase the house and investigate any suspicious activity.
Qualifying factors to get approved for a mortgage loan:
- At least 600 Credit Score
- Debt-to-income ratio of at least 43% or less is generally considered favorable.
- Employment and income: Lenders will want to see that you have a stable income and employment history.
- Saved up money for downpayment.
Continuing on, let’s get right into the actual process of mortgage loan appplication.
Mortgage Application Process: A Step-by-Step Guide
Steps for getting approved for a mortgage loan:
- Scheduling and Appointment
- Document Collection
- Meeting with Lender
- Pre-Approval Process
- Evaluation of Assets, Liabilities, Income and Credit Score
- Loan Amount Determination
- Pre-Approval Letter
- Property Search
- Offer and Appraisal
- Loan Approval Decision
- Signing Loan Agreement and Providing Down Payment and Closing Costs.
Scheduling and appointment
Book a time with your lender, your banker or your mortgage specialist to discuss your loan options. This can be done in person, over the phone, or online.
They will come up with a list of documents for you to provide depending on your specific scenario. Documents may include proof of income, personal identification, employment letter or self-employed documentation, credit score and credit history.
Meeting with lender
If you got those documents, you’ll now go for a meeting to discuss further your options and start the pre-approval process. They will also explain the terms and conditions of the loan, as well as the fees associated with it.
Then the lender will sit down with you and start the process of your mortgage loan pre-approval application to determine your ability to repay the loan and the amount that you can afford.
During the pre-approval application, will review your credit history, income, assets, and liabilities, and will determine if you are a qualified candidate for a loan.
Loan amount determination
Once you get pre-approved for a mortgage loan, your lender will then come up with an amount that you can afford, which is within your budget based on your income, assets, and credit score, as well as other factors such as the interest rate and length of the loan.
If your loan application is approved, the lender will provide you with a pre-approval letter, which is a formal offer to lend you the money.
Start looking for a property to buy that meets the available loan amount that your lender has pre-approved you for.
Offer and appraisal
Once you’ve found a property and made an offer on it, the lender will need to complete an appraisal of the property and verify the information provided in the pre-approval. This will ensure that the property is worth at least as much as the loan amount that you are requesting.
Loan approval decision
Once the lender has received the appraisal and all other required documentation, they will process the loan application. This process is usually quicker and more straightforward than the pre-approval process itself. After this, they’ll let you know if your loan application has been approved or denied.
Signing loan agreement
Once approved, you will proceed with the loan process and sign the loan agreement. At this point, you’ll need to provide a down payment and any closing costs. The down payment is usually a percentage of the purchase price usually around 20%, and the closing cost will cover other expenses such as appraisal fee, title search, and origination fee.
How long does that actual mortgage loan approval take?
Assuming that you’ve already gone through the pre-approval process and have already selected a home and made an offer on it, the actual mortgage loan approval From the time that the lender submits your documents to the underwriter for assessment should only take 24 to 48 hours maximum.
Getting those out of the way, how do you actually get approved for a mortgage loan?
How to get approved for a mortgage loan?
Here are steps you can take to increase your chances of getting approved for a mortgage loan:
- Improve your credit score by paying bills on time, reducing debt and using credit responsibly.
- Prepare documents that show your income and employment history, such as pay stubs and tax returns.
- Reduce your debt-to-income ratio by paying off debts and earning more income.
- Save up as much money as possible for a down payment.
- Get pre-approved by a lender before you start shopping for a home.
- Compare offers from multiple lenders to find the best one that meets your needs.
- Be honest when filling out your mortgage application. To put it simply, you want to show that you have a stable income, a good credit history and manageable debt levels in order to increase your chances of getting approved for a mortgage loan.
Hope this info helps.
Thanks for reading!