How Can You Get Pre-Approved for a Loan With a Current Mortgage?

Earning pre-approval for a mortgage loan isn't a simple process when you already have an existing mortgage loan.

Buying a home is never an easy task. When you already own a home, it is even more complicated. The challenge lies in timing the sale of your current home so that you can simply move into your new one. This isn't easy, and it rarely happens. It's also more of a challenge to get pre-approved for a new mortgage loan when you still owe payments on an existing loan. Fortunately, if your credit is strong and your gross monthly income high enough, you can get pre-approved for a home loan even while making payments on your current mortgage loan.

Things You'll Need

• Copy of your current mortgage loan statement
• Copies of your last 2 years worth of W-2 tax forms
• Copies of your 2 most recent paychecks
• Copies of your bank savings and checking account statements
• Copies of your other loan statements

Instructions

1. Contact mortgage lenders and banks--you don't have to work only with the lender servicing your current loan--and explain that you want to get pre-approved for a mortgage loan but that you already own a home with an existing mortgage that you are trying to sell. Some mortgage lenders will be more forgiving than others when it comes to the debt-to-income ratio that they require if they know that you are selling a home. After all, your current mortgage payments will disappear from your monthly debt obligations once you sell. Your existing mortgage lender might be willing to write your new loan with lower debt-to-income standards, too.

2. Make copies of the financial paperwork that your lender will use to verify your gross monthly income and your monthly debt obligations. This includes your W-2 statements from the last two years, your last two paychecks, your savings and checking account statements, your most recent credit card bills and the most recent statements from your car, personal or student loans. When applying for a traditional mortgage pre-approval, you'll usually need to prove to your lender that your gross monthly debt obligations, including your estimated new payments, are less than 36 percent of your gross monthly income. When you are applying for a pre-approval and you already have a home loan, your lender might be willing to allow a higher debt-to-income ratio, often as high as 50 percent or more, with the knowledge that your existing mortgage loan payments will eventually be eliminated with a home sale.

3. Give your lender permission to run a credit check on you. This will give your lender your three-digit credit, or FICO, score. This number tells lenders how responsible you've been with your finances in the past. Lenders will be more willing to pre-approve you for a mortgage loan when you are already paying down an existing mortgage if you have a high credit score. Scores of 720 or above are usually considered to be excellent scores.

4. Send your lender the copies you made of your important financial papers. You'll then have to wait while your lender considers how much money it would be comfortable lending to you. If your lender grants you pre-approval for a mortgage loan, it will send you a pre-approval letter stating how much money it will lend you once you make an accepted offer on a house. This letter makes you a much more attractive buyer to sellers.

Tips & Warnings

• If your finances just aren't strong enough to allow you to qualify for a mortgage loan pre-approval while you already are paying off a mortgage, you'll have to wait to buy your new house until you have accepted an offer on your current home. Once lenders know that your existing house has been purchased, and the mortgage loan on it is soon to be eliminated, you can qualify for a pre-approval as if that other mortgage loan did not exist.

References

• SmartMoney: Selling Your Home While Buying A New One
• Bankrate: Preapproval For A Mortgage Loan