Understanding and completing the mortgage pre-approval process can give you a leg up on other home buyers who haven’t done their research.
Complete the Mortgage Pre-Approval Process Before House-Hunting
While visiting open houses on the weekends is fun and exciting, serious buyers need to start looking at homes with a pre-approval letter. A pre-approval letter is important for a few reasons. First off, it shows the buyer the maximum amount they can take out in a loan considering their current income, assets, and liabilities. Secondly, most sellers will only negotiate with buyers who have already completed the mortgage pre-approval process, since it shows the seller that the buyer is serious about finding a home, and can quickly see if the buyer is qualified to buy the seller’s home. And finally, going through the pre-approval process will notify the buyer if there are any red flags with credit score, a good thing to know earlier rather than later.
The Fornerette Team is experienced and skilled. We can help you understand your home loan options and help you get the pre-approval letter you need to start the home buying process.
Items Often Considered in the Mortgage Pre-Approval Process
1. Income and Assets
Providing proof of income documents is more than just writing down your monthly income on a line. Buyers need to provide at least 30 days of pays stubs that also shows the year to date income in the same document. Additionally, buyers need to provide the last two years of federal tax returns. The last couple years is automatically saved to an account when buyers file online. If buyers cannot access their tax returns, they can call customer service as they will be able to send the tax return. Next, buyers need to show at least 60 days of asset accounts. This includes checking, saving, and investment accounts. Finally, buyers need to show at least two years of W-2’s. Be prepared to show any additional forms of income such as alimony or bonuses that affect income. For monetary gifts, buyers must show a signed gift letter from the person who gifted money. Mortgage lenders can provide this form to buyers.
2. Credit Score
Lenders typically reserve the lowest interest rates for buyers who have a 740 credit score or higher. Buyers with a lower score than 740 may have to pay a little more in interest, or can pay additional discount points to lower the rate. Most lenders require a 620 credit score (from all buying parties) to secure a 3.5% down payment for an FHA loan. Buyers with lower than a 580 credit score, will just have to put a higher percentage down when purchasing their home, typically 10%. This is where it’s good for buyers to see their credit score and see if there are any red flags that bring it down. Most lenders will advise buyers on how to lift your score over time. Credit score companies and financial institutions can give buyers an estimate of their credit score without appearing as a credit check on their credit report. A good step to take, even before starting the home buying process.
The lender wants to see if buyers are currently employed with the company that they provided the W-2s. Lenders will typically call the buyer’s employer to verify employment and salary as part of the mortgage pre-approval process. Lenders want to be sure they are loaning to buyers with a stable work history. Buyers who changed jobs multiple times in the past 2 years, may require the lender to call previous companies to also ensure proof of employment along with previous salary. Self-employed buyers will need to provide multiple other documents to their lender.
As always, every buyer is different. The quicker you get the requested documents to your lender, the smoother the process will be. Your pre-approval letter is typically valid for 90 days as they want to ensure buyers are serious about buying a home. Once buyers get pre-approved, they can accurately search for their next home!
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