What You Need to Get Pre-Approved for a Mortgage
Buying a house is an exciting experience.Walking through open houses and imagining your new life can be distracting from the nitty gritty of what needs to be done. Worst of all, you may start wandering through homes that are outside of your price range and fall in love. That’s not useful for anyone. To make sure you’re sticking with your price point, and showing sellers that you’re a serious contender once you do find a dream home, it’s vital to have a pre-approval for a mortgage.
Unlike a pre-qualification letter—which is a conditional estimate for credit given by a lender—a pre-approval means that the lender has investigated your credit and holdings and has verified that you are approved for a loan. This approval isn’t permanent, it’s usually for a particular period such as 60 or 90 days. Getting a pre-approval letter not only shows the seller you’re serious because you’re qualified to put in a bid on a home, it also means you’ve sat down with a lender and discussed your budget and loan options so you know exactly what you can afford.
This can help prevent the heartbreak of finding a property you simply cannot afford, and it also makes the process go much more smoothly when you find THE place and want to put in a bid.
In order to get pre-approved for a mortgage there are 5 things you’ll need to gather and present to a lender: proof of assets and income, good credit, employment verification, and other types of documentation such as identification.
To provide proof of income you can generally produce a W-2 wage statement that covers that last two years, recent pay stubs, proof of any additional income or bonuses, and the last two years’ tax returns. The more information you can provide the better.
For proof of assets your borrower will want bank statements and investment account statements. What the borrower is looking for is proof that you not only have funds for a down payment, but also for closing costs as well as a cash reserve left afterward. Your down payment, which is a percentage of the selling price, will be determined by the type of loan you are looking to get. If a friend or relative will be helping to assist you in the down payment or paying the loan, you’ll need a letter from them stating that the money is a gift and not a loan.
You’ll need a credit score of at least 620 or higher to apply for and receive a conventional loan, however, for a good interest rate you’ll want to have a score of 760 or higher. The lower your score is the bigger your down payment will likely be, though FHA guidelines allow approved borrowers with a score of 580 or higher to pay as little as 3.5% down.
For employment verification lenders simply want to make sure that you are working with stable employment. This can be more difficult to prove when you’re self-employed, and those in this category will need to provide much more paperwork concerning their business and income. According to Fannie Mae,factors that go into approving a mortgage for a self-employed borrower include: “the stability of the borrower’s income, the location and nature of the borrower’s business, the demand for the product or service offered by the business, the financial strength of the business, and the ability of the business to continue generating and distributing sufficient income to enable the borrower to make the payments on the mortgage.”
Finally, “other documentation”: This can include a number of things from your driver’s license and social security number to a credit report among other things. To make the process go as smoothly as possible be as cooperative as you can, and furnish whatever the lender asks for quickly, so you can get your pre-approval letter and put in a bid on that dream house!