What's an approval?
A Pre- approval is a lender committing to, based on the financial information you provide, you’re a good candidate for a mortgage. Your mortgage pre-approval usually provides the amount you are qualified for, interest rate and what your monthly payment. This process can vary from lender to lender, and some lenders will call this a "preapproval" or a "prequalification".
Why Getting Approved Is Important
Getting approved first has a few advantages:
- You and your real estate agent will understand what you can afford so you spend more time looking for properties that is within your budget.
- Agents talk and you'll be in a better position to make a strong offer on a house because the seller will know a lender already verified your finances.
- After your offer is accepted, you're less likely to run into surprises that could slow down closing the loan.
Keep in mind an approval is just the start of getting a mortgage. Once you find a house and make an offer, the house will need to pass inspections and be appraised by a third-party. Your approval amount could also change if your financial situation changes.
What Lenders Review
Mortgage lenders typically look at three criteria when deciding on how much you can borrow:
Your assets, your income and your credit.
Assets are items you own that could be turned into cash should the need arise. They include things like checking and savings accounts, stocks, real estate, personal property and more. Lenders review your assets to make sure you have some money set aside to make your mortgage payments after closing.
Lenders review your income to ensure you can afford a monthly mortgage payment. They'll also check your Gross Debt Service (GDS) and Total Debt Service Ratios (TDS) to make sure that the amount of debt you have doesn't offset your income too much.
|GDS is calculated as||Mortgage Principal + Interest + Taxes + (50% Condo Fees, if applicable)
|TDS is calculated as||GDS + All Other Debts
Typically, a mortgage company will want to see your GDS below 35% and your TDS below 42%.
Having good credit can help you qualify for a better interest rate because you've shown you're a responsible borrower. Some mortgage lenders have minimum FICO® score requirements. Mortgage rates for high ratio mortgages are pretty standard, with conventional mortgages, it pays to have higher credit scores as some lenders offer lower rare once the scores are at a certain score.
Will getting approved affect my credit score?
Getting approved for a mortgage involves pulling your credit report. Depending on your credit and, or credit history this might not affect your credit score, for some it could lower your score by a few points. If multiple lenders check your credit over a short period of time, the credit bureaus could count these inquiries as a single credit pull, and your score will only be lowered once.
Steps to Getting an Approval:
Every mortgage Brokerage has its own process for getting approved. At Sunlite Mortgage we use the which has three levels of approval.
The easiest way to get a Prequalified Approval is online through you'll:
- Answer a few questions about your income and assets.
- Give us permission to pull your credit report.
If you're approved, you can download or print a Prequalified Approval Letter to share with you and you can your real estate agent to start house hunting.
With a Verified Approval§, you can strengthen your bargaining position before you make an offer. Verifying your finances will help you make a stronger offer because it shows the seller you are able to buy the home. A Sunlite Mortgage agent will verify your income and assets within 24 hours, and you'll get a Verified Approval Letter listing the amount you're approved to borrow.
For the strongest approval plus protection against rising interest rates, ask a Sunlite Mortgage agent how to get RateHold Approval. They'll explain what you need to do, in addition to verifying your financial info, to lock your rate for up to 365 days while you're shopping for a home. If rates go up, your rate stays the same. If rates go down, your rate drops. Either way, you win! Learn more about RateHold Approval.
How long is an approval letter good for?
Approval letters generally expire after 120 days, some lenders hold their rates for up to 365 days, though that can vary based on your type of loan. If you haven't made an offer within 365 days of getting an approval letter, you should renew your approval before making an offer on a house.