What Do You Need To Be Pre-Approved For A Mortgage?
It’s easy for first-time homebuyers to assume that the process of buying a home starts in an open house. Truth is, the home buying process should start in a lender’s office in order to obtain a pre-approval letter. There are several other reasons why buyers should visit a lender before house hunting. Consulting with a lender will give the potential home buyer the chance to discuss budgeting and mortgage options.
Even more, the lender will help them out by checking their credits and notifying them of anything that could be a problem down the road. The buyer also gets the chance to know the maximum they can borrow with a clear idea of the type of homes they should shop for.
Almost all home sellers expects buyers to have a pre-approval letter and they are more enthusiastic to negotiate with potential buyers who can show proof of their ability to get financing.
But what exactly do you need to be pre-approved for a mortgage?
Things you need to be pre-approved for a mortgage
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Good credit
It’s no longer news that many lenders now reserve their best interest rates for customers with a credit score of at least 740. Any credit score that falls below that benchmark means borrowers will be required to pay a little more in interests or pay extra discount points to reduce the rates.
Also, FHA loan guidelines have shown more restrictions recently. Borrowers with a credit score below 580 are mandated to pay a larger down payment. Several lenders require a credit score of 620 or above before they can approve an FHA loan. So just before you start house hunting make sure you know exactly where your credit score stands.
- Documentation
Some documents will be required before you’re pre-approved for a mortgage. You lender will request for a copy of your drivers’ license, Social Security Number as well as your signature in order to pull a credit report. Make sure you have all other paperwork handy at the pre-approval session and at any other period when they are required. The more cooperative you are the easier the mortgage process will be.
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Proof of income
Gone are the periods of “No verification” or “No documentation” loans. All borrowers are now required to have a W-2 statements from the past two years, year-to-date income, recent pay stubs, and proof of any other income like alimony or bonuses as well as your two latest years of tax returns.
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Employment verification
Regardless of the employment paperwork you have, your lender will not only request for your pay stub but will call your employer to ascertain that you’re still employed and to verify your pay. If you have a new job, your lender will most likely contact your previous employer to learn more about your earning.
Currently, many lenders are only interested in loaning only to borrowers with a stable source of income like a good employment. What about self-employed borrowers? They have to provide valuable additional documents about their businesses and income.
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Proof of Assets
Your lender will require proofs that you have enough funds for the down payment and closing costs. As such, you will be required to present investment account statements and bank statements to show that you really have enough money for your down payment, closing costs and cash reserves.
Conventional home loans require 10% to 20% depending on the loan program, while FHA loan requires a down payment of as low as 3.5% of the cost of the property. However, if a friend or a relative decides to help with the down payment and sends you money, you will have to provide a gift letter to show that the money is not a loan.
Bottom line
One of the best decisions you can make is to consult with a lender before your home buying process. This will save you from a whole lot of troubles down the road and save you from wasting your time with the wrong property when you start house hunting.