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How Do I Get Pre-Qualified for a Mortgage?
Before you start shopping for your dream house, you'll want to be sure you can get prequalified for a mortgage. To get that prequalification, you'll need to prove to the bank that you're financially prepared to take on a mortgage loan and are able to make the monthly payments.
When evaluating candidates for mortgages, lenders look at items such as your credit history, proof of income, debts, and any assets you may have (such as retirement accounts). So, before you fill out the mortgage application, take some time to ensure that all these items are in good order. Here's an overview of what it takes to get prequalified for a mortgage.
1. A solid credit score
Your credit score is a three-digit number that reflects how well you've paid off debts in the past. It takes into account the types of credit you have, how long your credit history is, how much debt you have, and whether you've made payments on time. Scores range from 300 to 850, with 850 being a perfect credit score. The minimum credit score required for a mortgage loan varies from lender to lender, but a good benchmark is a score of 660 or above.1 An exception is an FHA mortgage, which is insured by the federal government and can be approved for buyers with credit scores of 500 or above.2 To improve your credit score (and your chances of getting approved for a mortgage), make sure you pay all your bills on time and pay down any credit card balances.
Tip: Lenders look at much more than just your credit score. Your income, assets, and debt-to-income ratios all show whether you're loan-worthy.
2. Steady income
You'll also need to show lenders that you have reliable income. You can prove your income with pay stubs, W-2 forms, and tax returns. The amount of money you make in income will help determine how much house you can afford (see number six below). Steady income ensures that you can make your monthly mortgage payment on time and still have room in your budget to cover all your other expenses, such as food and utilities. For self-employed buyers or those with variable income (for example, someone who works on commission), you'll have to show additional documentation,3 such as tax returns and 1099 forms, to prove that you make enough to cover a house payment over time.
3. Cash for a down payment
Most mortgage loans require that you pay between 3% and 20% of the purchase price up front as a down payment. The down payment offers the lender some assurance that you are committed to paying for the house over time. It also provides an incentive for you to keep making monthly payments so that you don't lose your investment. Though it's possible to get a mortgage with a small down payment, a down payment of 20% or more will help you avoid paying for Private Mortgage Insurance (PMI).
4. Documentation
Your lender will want to see various documentation when considering you for a mortgage. To make the process easier and ensure a faster prequalification, start gathering the following documents. This isn't an exhaustive list, but it covers the items most often requested4 by lenders:
- Proof of income: Grab your most recent W-2 forms, pay stubs, bank statements, and any other proof of income and have them ready to show your lender. This is key to proving you can make those mortgage payments.
- Tax returns: In addition to income, the lender will want to see your most recent tax returns (typically one to two years' worth).
- Documentation of debts: The bank needs to know how much debt (if any) you have — and how much you pay each month toward student loans, car payments, credit cards, or other debts.
- Proof of assets: If you have any investments, retirement accounts, savings accounts, bonds, or other assets, have proof handy. These assets enhance your financial profile and make it easier to get prequalified.
- Residence history: Past addresses, including landlord references, may be required. A strong history of past rent or mortgage payments will improve your chances of getting prequalified.
- Documentation of any gifts or loans for the down payment: First-time home buyers often get a little help from family members to make their down payment. The bank will need documentation of any financial gifts or loans (documentation such as a signed letter indicating that the money was a financial gift or a personal loan).
5. Good debt-to-income ratios
Lenders use this ratio to determine how big of a mortgage loan you can handle. The debt-to-income ratio (DTI) is simply how much debt you currently have in relation to your income. A high DTI might signal to the bank that you have too much debt for your income level and don't have room in your budget to pay a mortgage. A low DTI shows that you have a good balance between debt and income and can take on a mortgage payment. To improve your chances of getting a mortgage, work on lowering your DTI. You can do this by paying off credit card balances and car loans, or paying down student loan balances.
6. Know how much house you can afford
One last key to getting that mortgage prequalification is understanding how much house you can afford. This takes into account not only the purchase price of the home, but also how much cash you plan to pay as a down payment, what you qualify for, and what your income and monthly expenses are. Many financial experts recommend that your monthly house payment is no more than 30% of your monthly income. Not sure how much house you can afford? Use our handy calculator.
Ready to take the next step? Explore mortgage loan options from Synovus and contact a mortgage lender near you.
Important Disclosure Information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
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Realtor.com, "What Credit Score is Needed to Buy a House?" Angela Colley, accessed June 2, 2018.
Back - NerdWallet,"FHA Loan Requirements for 2018," accessed May 7, 2018. Back
- NerdWallet, "Self-Employed? 8 Keys to Getting Approved for a Mortgage," Hal M. Bundrick, CFP, accessed May 7, 2018. Back
- Bankrate, "Round Up These Documents Before Applying for a Mortgage," Robin Saks Frankel, accessed March 21, 2018. Back
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This guide can help answer your questions and even tell you how to get prequalified for a mortgage.