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    Everything to Know About the Pre-Approval Process

    No doubt, you’ve already hear about being “pre-approved” if you’re planning on buying a home. Yet many people don’t fully understand the process.

    What is Pre-Approval?

    In short, being pre-approved for a mortgage means that the lender decides if you’re eligible for a loan and how much you can borrow. This decision is based on your finances and credit rating.

    Why Do I Need to Get Pre-Approved?

    Being pre-approved is necessary for a number of reasons. It gives you clearer picture of how much money you need to complete the buying process. The more you put down, the lower your monthly payments will be. You will also get a better idea of how much you can afford for the total price of the home.

    Many people make the mistake of thinking that the loan product that a friend used will work the same for them. Even though that’s a possibility, it’s not safe to assume so. No two loans are alike, just as no two lives and circumstances are alike.

    Loan products also have different costs, such as varying lender origination fees. Your loan officer can work with your to learn the costs of a loan and how the loan process works.  This will give you a good idea of what costs to expect.

    Knowing these things will make you more comfortable when deciding on a home to buy. It also shows sellers that you’re serious about making an offer, giving you an edge over buyers who haven’t been pre-approved.

    Getting Pre-Approved is Easy

    Pre-approval is an easy process, so there’s no reason not to do it. You just need to know how much money you make, assets, and debts.

    What Will My Lender Need to Check During Pre-Approval?

    • Your credit score. Yes, your lender will then have to pull your credit. Don’t worry, pulling your score once shouldn’t affect your score. 
    • W2s or 1099s
    • Pay stubs
    • Tax returns
    • Bank statements
    • Account statements
    • Your list of monthly expenses

    Gathering all these documents can feel like busy work and is typically the hardest part for you.

    If you want to have an idea of whether you’ll get pre-approved before choosing a lender, a good first step is finding out your debt-to-income ratio, or DTI. Your DTI ratio helps a lender understand how much of your monthly income goes to paying debt and what you have left after those debts are paid. You can calculate the ratio by dividing monthly debt payments by gross monthly income.

    The lower your debt-to-income ratio is, the better. A lower DTI will make you seem less risky to lenders.

    Although each loan product is different, most lenders would prefer your debt-to-income ratio to be at 36% or lower.

    Check back on our blog every week for more real estate advice and local articles about living in Albuquerque. And make sure to follow us on Facebook for up to date real estate news for Albuquerque and surrounding areas.

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