Money talks if you are a serious buyer. This is why the pre-approval process is highly recommended in the very first stages of your home search. Knowing how much you can afford makes your home process more efficient and gives you a higher negotiating power once you make your first offer. To get a pre-approval letter, you will need several documents. These include proof of income, a credit report, and employment verification.

1.     Proof of Income: You must provide W-2 wage statements from the past two years, and recent pay stubs to show income and the number of your earnings for the current year. If you have any additional income like alimony or bonuses, you will need to provide your lender with these statements. Also, you need to provide tax returns from the past two years.

2.     Proof of Assets: There are several hidden costs of buying a home. If you are using a down payment, paying for closing costs, or requiring Private Mortgage Insurance, you need bank statements and investment account statements outlining any dividend or interest income to prove you have enough cash reserves. The lender will also need a paper trail of any cash gifts received for your down payment and additional costs.

3.     A Credit Report: The minimum credit score for each home loan varies, but a good rule of thumb is that you need a FICO score of at least 620 to qualify for most conventional and loans. If your credit is not sufficient, our lender has a credit counseling program to get you on track to purchase your home.

4.     Employment Verification: Lenders only approve buyers with stable employment. If you are an employee, a lender verifies your current employment status. If you are self-employed, you must provide additional paperwork. Approval is determined by factors such as the financial health of the business and you may need to provide a profit and loss statement. Other financial statements of your business may be required and vary by lender.

5.     Identification: This document is standard in the industry to prevent mortgage fraud and identity theft. You must provide a photo ID like a driver’s license and a copy of your social security card to the lender for them to pull a credit report.

6.     Statements of Monthly Expenses: This includes any credit cards, auto, or student loans where a balance is still owed. This helps the lender evaluate your debt-to-income ratio, which determines your ability to repay the loan.

7.     Place of Residence: Your lender will want to verify where you have lived for the past year or two, and you may need to provide a satisfactory rental history.

 

Getting pre-approved can be a nerve-racking process, as your finances will be under a microscope. However, completing this step early into your home search will give you peace of mind when shopping for your next home. Your pre-approval letter is good for six months to a year, depending on the lender. If your time lapses, getting another letter will not be as tedious as the initial pre-approval process. You may have to provide updated income statements and verify that your monthly expenses have not changed. If you have any additional questions about this process, contact us and we would be happy to help!