Getting Mortgage Preapproval

Whether you’re a first-time buyer or you’ve purchased a property before, getting a mortgage loan preapproval is always a time-consuming process. The purpose of this website is to present the various mortgage products, with a focus on how to get preapproved for a home loan. We’ll tell you everything you need to know about home loan pre approval so you don’t have to go to the trouble of researching it yourself.

How to Get Pre Approved for a Mortgage

Mortgage preapproval is the closest you can get to being approved for a mortgage without having a purchase contract. To get preapproved for a home loan, you’ll need to complete a mortgage application, providing things like your social security number, recent pay stubs, tax returns, bank statements, and proof of other sources of income. Your lender will then perform a hard credit check before deciding whether to grant you preapproval for a home loan.

Once you receive preapproval for a mortgage, the offer will remain valid for 90 days. This should give you enough time to complete a purchase contract on that property you’ve been eyeing. If the offer expires, then you’ll need to undergo another credit check in order to get a new pre approved home loan offer.

Types of Mortgages

Conventional Home Loans

The most common form of mortgage is a conventional mortgage, also known as a conforming loan. This type of home loan involves two parties: the borrower (you) and the lender. Most lenders require at least a 20% down payment on a conventional mortgage. However, an increasing number of lenders are offering mortgage pre approval with just a 3% down payment requirement.

Jumbo Loans

Jumbo loans are loans that exceed the legal conforming loan limits set by the Federal Housing Finance Agency (FHFA). Because jumbo loans involve more money and therefore greater risk to mortgage companies, they typically have stricter qualifying requirements. In 2022, the conforming loan limit is $647,200 in most U.S. counties and as much as $970,800 in high-cost areas such as the greater New York, Washington, D.C., San Francisco, and Los Angeles areas.

FHA Loans

This is a government-backed loan for buyers with poor credit or little money for a down payment. FHA loans come in two forms: 3.5% down payment for borrowers with credit of 580-619, or 10% down payment for borrowers with 500-579 credit. The one catch with an FHA loan is that it requires monthly private mortgage insurance (PMI), which you can usually stop paying once you reach 20% equity. Most lenders only offer FHA loans to borrowers with 580+ credit, but a handful serve borrowers with as little as 500 credit.

VA Loans

VA loans are a government-backed loan administered by the Department of Veteran Affairs. The minimum credit requirement for a VA loan is usually 620+, the same as a conventional loan, but the big prize is the zero down payment requirement. The following people may apply for a VA loan: veterans who have served at least 90 consecutive days of active service in wartime or 181 days of active service in peacetime; members of the National Guard and Reserve who have served at least 6 years; and spouses of veterans who died in the line of duty or as a consequence of a service-related injury.

USDA Loans

Like other government-backed loans, lenders may only offer USDA loans to borrowers who meet the qualifying requirements–in this case, the main requirement is purchasing in a rural or semi-rural area. USDA mortgages require no down payment but do require monthly PMI until you reach 20% equity.

Types of Rates

Fixed-Rate Mortgages

As the name suggests, fixed-rate mortgages are mortgages with fixed rates for the entire duration of the loan. When you take a fixed-rate mortgage, you pay more in year one than you would with an adjustable-rate mortgage. However, you protect yourself from the risk of having to pay a higher rate and higher monthly installments later in life. Given that interest rates are still hovering close to all-time lows in 2022, the only direction that rates can realistically go from here is upward–which is why locking in a fixed-rate mortgage is currently a better option than betting on an adjustable-rate.

Adjustable-Rate Mortgages

Adjustable-rate mortgages, also known as ARMs or variable-rate mortgages, carry higher risk and higher reward than fixed rates. An ARM is always cheaper than a fixed-rate mortgage in year one, but it carries the risk of higher interest rates in the long term. ARMs have two components: the number of years the initial rate gets locked in for; and the intervals at which rates get updated. Most lenders offer ARMs of 3/1, 5/1, 7/1, or 10/1. A 3/1 ARM refers to an ARM with a fixed rate for the first three years and a rate update every year after that. The shorter your fixed period, the better your introductory rate but the riskier the loan.

Average Mortgage Rates

The best home loan lenders each set their own mortgage rates, which they update on a daily basis. Of course, all mortgage companies operate in the same market, so their rates tend to fall within roughly the same range at any given time.

Average preapproved home loan rates are currently* around:

• 3.22% for a 30-year fixed-rate mortgage
• 2.43% for a 15-year fixed rate mortgage
• 2.41% for a 5/1 adjustable-rate mortgage

*Updated Jan. 10, 2022

What to Look for When Comparing Mortgages

APR

The monthly payments on a mortgage comprise principal, as in the amount remaining on your loan, and interest, as in the money the lender collects for providing the loan. Your APR, or annual percentage rate, consists of the interest rate plus certain other lender fees. The lower the interest rate / APR, the lower your monthly payments to the lender.

Terms

The repayment term, or loan duration, is another important factor when comparing mortgages. The typical repayment term is 15-30 years although some lenders offer mortgages with terms as short as eight years. There is no right or wrong when it comes to repayment terms; what’s best for you depends largely on how much you can afford to pay each month. The shorter the term, the higher your monthly payments but the less you’ll pay in interest over the life of the loan. The longer the term, the lower your monthly payments but the more you’ll pay your lender in the long run.

Closing costs

Closing costs are the fees and charges owed to the lender when the loan begins and usually range from 2-6% of the loan value. Therefore, if you take out a $300,000 loan and your closing costs are 3%, this means you’ll pay the lender $9,000 in upfront fees. Closing costs may include origination fees, property appraisal, title fees, taxes, and various other costs–some of which go directly to the lender and some which the lender collects on behalf of third parties. Closing costs vary from lender to lender, so knowing each lender’s approximate closing costs can assist you in doing a proper comparison.

Ease of application

Gone are the days when you had to walk into a physical branch to get preapproved for a home loan. These days, the best mortgage lenders let you apply for mortgage loan pre approval online, sometimes through a fully automated online mortgage platform and other times with phone assistance from a loan agent. If convenience is important to you, then keep an eye out for digital-friendly lenders.

Transparency

Customer service is always important, but even more so when we’re talking about six-figure deals. Always search for a lender that’s transparent about rates and fees, open about the requirements, and has good reviews. Be suspicious of lenders that hide or make it difficult to find important information.