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Unless you’re buying a home with all cash, getting pre-approved by a lender will give you an official verdict on your home buying budget. In order to get pre-approved, a lender will calculate your debt-to-income ratio and assess your overall financial health by reviewing your:

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• Income statements, like W2s, 1099s, rental income and tax returns

• Assets, like bank statements and retirement accounts

• Debts, including monthly expenses like student loans, credit cards and other mortgages

• Records of bankruptcies and foreclosures

• Current rent, child support payments, alimony payments and any down payment gifts

 

When you’re pre-approved, you’ll receive a pre-approval letter. Not only does it officially let you know how much you can borrow, but it can come in handy when submitting an offer. A pre-approval letter shows a seller you’re serious about buying their home. This is especially important in a hot market, when you’re likely competing against other offers.

 

Note that you do not have to use the same lender to finance your loan that you used for your pre-approval. In fact, it’s always best to get estimates from multiple lenders so you can compare interest rates and fees before actually opening your mortgage.

 

Keep in mind that your debt-to-income ratio will be examined again before closing. Taking on new debt can limit the total loan amount available to you during financing.

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