Shopping for homes in Ann Arbor, MI is simpler once you get pre-approved for a mortgage. One of the reasons that home buyers do this first is because they have a better chance at negotiating with sellers. It means that you are serious about buying a home and aren’t just “window shopping.” Since the real estate market in Ann Arbor, MI has allowed many home buyers to get into quality homes for low prices, the current market has turned around in the area and has allowed many homeowners to witness a rebound for their homes. While you may not have your perfect home selected, it will be helpful to beat out other bidders and get a fair price during house negotiations. Here’s a look at how to get started on pre-approval.

What is a Pre-Approved Mortgage?

A pre-approved mortgage means that you have a commitment in writing from a lender that qualifies you for a loan amount. This number is determined by your credit history, credit score, previous mortgages, income and other factors. Once you receive this letter, it’s good for 60 to 90 days as set by the lender.

Why Not Wait?

Getting a pre-approval early in the house hunting process makes you look more attractive and serious to sellers. They see that you are actively shopping, and you also have a better idea of what you can afford. You can find houses that are in your price range and present real offers that will allow you to bargain more effectively with sellers. Most bank-owned properties also require you to have a pre-approval letter before they will accept an offer.

How to Get Pre-Approved

The first step is to contact a lender in Ann Arbor, MI. The lender typically responds to these requests within 48 hours if you provide all of the necessary paperwork. If you want to get an idea of what you can qualify for, there are plenty of calculators available for mortgages. In order to get pre-approved, you need some important documents. These include:

• W2 for the past two years
• Your pay stubs for the last three months
• Tax returns spanning two years
• Checking and savings bank statements for three months
• Statements for other assets like bonds and retirement accounts
• Name and phone number of landlord if renting or current mortgage documentation
• Divorce decree if you have one
• If self-employed, you’ll need business tax returns for the past two years and year-to-date profit and loss statements

What Role Credit Plays in Pre-Approval

Lenders always pull credit reports and check your score for anyone borrowing money for the mortgage. If you have a co-borrower, their credit history will also be looked at. Most lenders also charge a fee to do this. It shouldn’t be over $30. The lender looks at your credit report for any red flags like missed payments, late payments, charged off debt and other negative marks. Credit score is also a major determining factor. Lenders favor scores that are over 720 and will offer lower interest rates. Your overall debt will be calculated in what’s called a “debt-to-income” ratio. Basically if you have too much debt and not enough income, you won’t be a good candidate for a loan and may have a higher interest rate.

If you have tried to get pre-approved for a mortgage in Ann Arbor, MI before and you were denied, you can still improve your situation and talk to a lender again after a few months. Some things that help include correcting errors on credit reports, decreasing overall debt and increasing your initial down payment to better qualify for the price of the property.