Pre-Approval Checklist

Dreaming of owning a home in Utah? Before you start scrolling through online listings, it’s essential to get preapproved for a mortgage. This key step helps you understand how much a lender is willing to let you borrow and what kind of mortgage you qualify for—turning those dream-home fantasies into a more actionable plan.

Why Mortgage Preapproval Matters

Mortgage preapproval is more than just a number. While it’s nonbinding, it shows sellers and real estate agents that you’re serious and financially prepared to buy a home. By providing details about your employment, income, debt, and financial accounts, your lender will issue a preapproval letter once they verify your financial information.

This letter not only strengthens your offers but also gives you a clear picture of what you can afford, making it easier to focus on homes within your budget.

Preapproval vs. Pre-Qualification

While both pre-qualification and preapproval are important steps in the homebuying process, they serve different purposes.

Pre-Qualification is a good first step if you’re unsure whether you’re financially ready to buy a home. It’s typically based on an informal evaluation where you provide the lender with information about your credit, debt, income, and assets. The lender then estimates whether you could qualify for a mortgage and how much you may be able to borrow. It’s a helpful tool to see where you stand, and you can even use a mortgage pre-qualification calculator to get an idea.

Preapproval, on the other hand, is a more formal and in-depth process. After receiving a positive result from pre-qualification, the next step is to get preapproved. In this process, a lender will pull your credit report and review your financial documents to verify your income, assets, and debts. This gives you a clearer picture of how much you can borrow and your mortgage eligibility.

If you're already confident in your credit and financial situation, you can skip the pre-qualification step and go directly to preapproval, especially if you're ready to start shopping for homes. Preapproval shows sellers that you’re serious and financially prepared, giving you a stronger position in the market.

Start Researching Lenders

Once you’ve gathered your financial information, it’s time to explore lenders that align with your needs. Many offer online preapproval portals to simplify the process. By starting with preapproval, you’ll be one step closer to finding your perfect Utah home.

Key Takeaways:

• Gather Your Documentation: To get preapproved for a mortgage, you'll need to provide key documents such as Social Security numbers, proof of income, banking information, and tax forms. Make sure to use a preapproval documentation checklist to stay organized.
• Get Your Finances in Order: Before applying, it’s important to review and address your financial situation. This could mean fixing any inaccuracies on your credit report or paying down existing debt to show lenders you're financially responsible and ready for a mortgage.
• Pre-Qualification vs. Preapproval: Pre-qualification is a more informal process that gives you a general idea of what you can afford, while preapproval is a more thorough and formal process suited for motivated buyers who are ready to make a move.
• Expiration of Preapproval: Keep in mind that your preapproval will likely expire in three months or less, so it's important to act within that timeframe.

5 Steps to Get Preapproved for a Home Loan

1. Check Your Credit Score

Before you start reaching out to lenders, it's helpful to know where you stand. Aim for a credit score of at least 620 to qualify for a mortgage, though a score of 740 or higher will secure the best rates. If your score needs some work, focus on improving it before applying, or look for lenders who specialize in working with borrowers who have lower scores.

2. Review Your Credit History

Request copies of your credit reports and check for any errors. If you spot any discrepancies or accounts in delinquency, work with the creditors to resolve the issues before applying for a mortgage. Clearing up any issues will help you present a stronger application.

3. Calculate Your Debt-to-Income (DTI) Ratio

Your DTI ratio is the percentage of your gross monthly income that goes toward paying debts like credit cards, student loans, and car loans. Lenders prefer a DTI of 36% or lower, including your mortgage payment. If your DTI is high, consider reducing your debt before applying for a mortgage. Tools like NerdWallet's debt-to-income calculator can help you estimate your ratio.

4. Gather Your Financial Information

You'll need to provide various personal and financial details, including your Social Security number, current address, employment information, and banking details. Be prepared to provide documents like W-2 forms, pay stubs, and tax returns. Self-employed individuals typically need to submit two years of income tax returns. If you plan on using gift money or asset sales for your down payment, be ready to provide documentation for that as well.

5. Contact Multiple Lenders

It’s important to compare offers from several lenders to find the best rates and terms. Since preapproval involves a hard credit inquiry, your score may dip slightly, but if you apply to multiple lenders within a 45-day period, it will count as a single inquiry. This way, you won’t be penalized for shopping around for the best deal.

By following these steps, you'll be well-prepared to get preapproved for a mortgage and ready to start your homebuying journey!

How Far in Advance Should I Get Preapproved for a Mortgage?

Mortgage preapproval is a key step in the homebuying process—it’s an offer from a lender that lets you know how much you can borrow and under what terms. However, this offer doesn’t last forever. Preapproval letters typically expire within 30 to 90 days, so it’s important to know how long your preapproval is valid.

Ideally, you should get preapproved when you’re ready to start seriously looking for homes and are prepared to make an offer. This ensures you know your budget and can act quickly when you find the right property.

It’s also important to remember that preapproval is not a guarantee of a loan. Even after preapproval, the lender may still deny the mortgage. A home appraisal will be required to ensure you’re not overpaying for the property. Additionally, if your financial situation changes between preapproval and closing, the lender may revoke the offer.

To avoid this, it’s crucial to avoid financial moves that could make you appear riskier to lenders. This includes actions like applying for new credit, making large purchases, or missing payments on loans or credit cards. Keeping your financial situation stable after preapproval ensures you’re in the best position to close on your home.

Frequently Asked Questions

1. Do mortgage preapprovals affect your credit score?

Yes, mortgage preapprovals can result in a temporary dip in your credit score. This is because a mortgage preapproval is considered a hard inquiry on your credit. However, if you submit multiple preapproval applications within a 45-day period, the impact on your score will be minimized, as all inquiries are treated as one.

2. How long does it take to get preapproved for a mortgage?

The time it takes to get preapproved for a mortgage can vary. Generally, it can take several days or longer, depending on the lender and how quickly you can provide the necessary information, such as proof of income and assets.

3. What documents do you need for a mortgage preapproval?

You’ll need to provide various documents to verify your financial situation. These typically include tax returns, W-2 forms, and pay stubs to confirm your income, as well as a list of your monthly debt payments (e.g., student loans, credit cards). Lenders will also require bank, retirement, and investment account statements to show proof of your assets.

4. What’s the best way to get preapproved for a mortgage?

Before reaching out to a lender, check your credit score and review your credit report. A higher credit score can help you qualify for better mortgage rates. Be sure to correct any errors on your credit report to ensure your score reflects your true financial standing.

Ready to Take the Next Step?

Getting preapproved for a mortgage is the foundation of a successful homebuying journey. Whether you're eyeing a cozy starter home in Salt Lake City or a spacious retreat in Utah County, taking this step shows you're serious and prepared. At Red Sign Real Estate, we’re here to guide you every step of the way.

If you’re ready to start the process or have questions about finding the perfect home in Utah, reach out to us today. Let’s turn your dream of homeownership into reality!