Many people are surprised at the number of steps they have to go through to buy a new home. It’s not as simple as getting a loan, picking the house, and closing the sale. There are several steps in between finding your new home and moving in, and the process can be overwhelming, especially for first-time home buyers.
It’s nice to have someone on your side to guide you through the process. While there are many St. Louis mortgage lenders who are able to help with your mortgage, there’s only one mortgage lender who’s willing to walk you through the entire process. Homestead Financial Mortgage is a St. Louis mortgage specialist with expert mortgage loan officers who are educated in the entire home-buying process from start to finish. Homestead Financial Mortgage offers lots of resources to help home buyers get through the purchase process quickly and with as little stress as possible.
Pre-approval vs. Pre-qualification
Mortgage pre-approval is one of the first steps on the road to homeownership. Many home buyers use the terms pre-approval and pre-qualification interchangeably. However, they’re not quite the same thing. Pre-qualification is basically a snapshot of where you sit financially at a given point in time. This is put together based on verbal information that you provide to your mortgage lender. A pre-qualification letter gives you an idea of the interest rate and terms you can expect based on your financial status.
Pre-approval goes more in-depth, using bank statements, credit reports, retirement account statements, and other documentation to gain a clearer picture of your ability to obtain and repay a home loan. Sellers like to work with buyers who have a pre-approval letter. They know this letter means there’s little risk that the purchase will fall through because of financing issues. The pre-approval letter includes more detail than a pre-qualification letter, including an estimate of the loan amount, the interest rate, and the estimated monthly payment.
Steps to Mortgage Pre-Approval
Here are a few things you can do ahead of time to ensure that you’re pre-approved for a home loan.
Know your credit score. Much of the mortgage pre-approval process starts with your credit score. The higher the score, the more willing a mortgage lender will be to loan you money. Generally, a credit score of 620 or higher will get you the best interest rate on your mortgage.
Clean up your credit report. While you’re checking your credit score, take a look at your credit report, too. Make sure that everything you see in the report is legitimate, and dispute any errors that you find. Close any accounts you’re no longer using. The fewer open accounts that show up on your credit report, the better you look to a lender. Every consumer is entitled to one free credit report per year from one of the big three consumer credit companies (Experian, TransUnion, or Equifax) or at annualcreditreport.com.
Calculate your debt to income (DTI) ratio. Mortgage lenders operate within specific guidelines when it comes to making home loans. Most St. Louis mortgage lenders will want your debt to income ratio to come in at or below 36%, which means that no more than 36% of your total gross income is allocated toward paying monthly obligations, including your housing. Each lender is different, and some lenders may have a slightly different threshold, but knowing your DTI before you talk with any mortgage lenders is helpful.
Plan for a down payment. The amount of money you put down on a new home significantly impacts the amount of your monthly mortgage payment. The more you put down upfront, the less you have to borrow. And the less you borrow, the smaller your monthly payment will be and the less you’ll pay in interest over the life of the loan. Make plans in advance to save up the cash you’ll need for a down payment. For a conventional mortgage, a down payment of 20% is standard, although not necessarily required. There are also other types of mortgages that require a smaller down payment for those who qualify. Your mortgage loan officer can help you sift through the options that may work for you.
Don’t forget closing costs. Closing costs are another item that must be paid in cash, and they can be considerable depending on the size of the loan. Don’t forget to save up money for closing costs during your planning phase. These costs typically run between 3% and 5% of the loan amount and are due at the time of closing.
Gather all your documents. Start gathering all the documents you’ll need during the pre-approval process, and put them in a file where they’re easily and quickly accessible. Documents that you’ll need include the following:
- Current pay stubs
- W-2s from all employers for the past two years (or 1099s if self-employed)
- Some form of identification, such as a driver’s license
- Federal tax returns for the past two years
- Bank statements for the past two months
- Retirement account statements
It’s better to include too much documentation than to find out you need something and don’t have it. If you’re in doubt, put it in the folder. You can always set it aside later if you don’t need it.
Homestead Financial Mortgage is Here to Help
Homestead Financial Mortgage is one of St. Louis’ leading mortgage lenders. In addition to our St. Louis branch, we have branches in Overland Park, Kansas, Glen Carbon, Illinois, and Godfrey, Illinois. Our professional mortgage officers are well-versed in the entire home-buying process; we even have real estate professionals that we can refer you to if needed. Our goal is to take the fear and stress out of buying a home, especially for first-time home buyers.
If you’re ready to start the pre-approval process for your home loan, give us a call, visit us online, or stop in and see us at one of our branch locations. We’ll make sure your home-buying experience is the best it can be!