Buying a home is going to be one of the biggest investments you make so you want to make sure you prepare properly. And this doesn’t mean going to open houses and looking at all the nice houses you think you can afford. Sellers are expecting pre-approval letters which verify you have the income, assets, and good credit to close on a home.
Before you start, you want to get a few things in order:
The first thing required when getting pre-approved for a mortgage is proof of income. Lenders typically require a 2 year verification of employment in order to verify your work history. For w-2 employees, they’ll want to see your last 2 years of W-2s and 2 most recent pay stubs showing your income as well as year-to-date income. For self-employed clients, lenders will want to see 2 years of personal tax returns and business tax returns if applicable.
When purchasing a home, the lender will want to verify bank statements and investment accounts to verify that you have money to cover the down payment and closing costs for the home. There are loans that are designed for low-to moderate income buyers that can help assist with down payment. For typical loans, you can expect to pay around 3-5% for the down payment and another 2-3% in closing costs. For Veteran loans, you can close with 0 money down.
If a buyer is receiving money in the form of a gift from a friend or relative, it needs to be documented with a gift letter and proof of funds may be required from the donor.
Most lenders require a minimum 620 credit score for FHA and VA loans and a 640 minimum for conventional loans. The lowest rates are reserved for borrowers with the best score. For a $350,000 home with an FHA loan, a 620 score would give an interest rate of 5.625% with a payment of $1978 whereas a 740 FICO score will give you a rate of 5% with a payment of $1845. At today’s rates and over the 30 years of the $350,000 loan, an individual with a FICO score at 620 would pay $47,880 more in principal and interest than a homeowner with a 740 FICO score.
Lenders want to make sure that the borrower they’re lending their money to has a stable form of income. They verify this not only through your taxes and pay stubs, but lenders will also want to contact your current employer and previous employers if you’ve changed jobs a few times in the last 2 years.Self-employed borrowers will typically need to just produce their last 2 years of tax returns but for those who have a hard time showing consistency with seasonal or part time work, they may need to provide additional paperwork.
The lender will need a driver’s license and social security card to verify your identity along with authorization to pull credit.
Additional documentation like a copy of a mortgage statement and homeowners insurance may be required for borrowers who own a home with a mortgage already.
Be prepared to provide additional documentation when requested. The quicker you provide the documentation, the faster and smoother the pre-approval process will be.
Our online application asks you all the necessary questions in order to determine your eligibility for a home loan approval. We initially do soft credit checks which have ZERO impact on your credit and help us offer you an accurate idea of what you can afford.
Once you’ve finished applying, one of our loan officers will contact you immediately to go over your application and help adjust numbers to fit your budget. We want to understand what type of home and area you’re looking for then give you solutions on different loan types, down payments, and interest rates to best suit your needs
Once you’ve provided all the necessary documentation, we’ll provide you with a pre-approval letter guaranteeing that you can afford the mortgage option looking for. You can then use the pre-approval letter to present a strong offer to sellers with the help of your real estate agent.