How to get preapproved for a mortgage

Core Insights - The article emphasizes the importance of mortgage preapproval in the homebuying process, highlighting how it provides buyers with a clear understanding of their borrowing capacity and enhances their credibility with sellers. Group 1: Importance of Preapproval - Mortgage preapproval is a statement from a lender indicating how much money they are willing to lend based on a review of the buyer's financial profile, including income, assets, debts, and credit history [5][6][18] - Preapproval helps buyers focus their home search within their budget and makes their offers more compelling to sellers, especially in competitive markets [4][6][26] Group 2: Steps to Obtain Preapproval - Key steps in the mortgage preapproval process include checking credit scores, calculating debt-to-income (DTI) ratios, gathering necessary financial documents, and shopping around for lenders [7][9][12][17] - Lenders typically require a minimum credit score that varies by loan type, with conventional mortgages requiring a score of at least 620, FHA loans varying from 580 to 500 depending on down payment, and VA loans usually requiring around 620 [8] Group 3: Financial Documentation - Essential documents for mortgage preapproval include pay stubs, W-2s, proof of additional income, account statements, and identification [15][16] - Self-employed individuals may need to provide more detailed documentation, such as profit-and-loss statements [13] Group 4: Impact of Preapproval on Credit - During the preapproval process, lenders conduct a hard credit inquiry, which may slightly lower the credit score but can be grouped into a single entry if multiple inquiries occur within 45 days [19][20] - Preapproval does not guarantee a loan, as final approval requires a thorough review of finances and the property being purchased [22][24] Group 5: Handling Denials and Renewals - If denied preapproval, buyers can improve their credit score, reduce debt, or apply with different lenders, as qualification thresholds may vary [31][32] - Preapprovals are typically valid for 90 days, and renewing them may involve a recheck of credit and finances [27][28]