In this competitive real estate environment, it’s important to get pre-approved before making an offer on a property. A mortgage pre-approval means the lender has actually checked your credit and verified your documentation. Home Sellers expect all potential buyers to have a pre-approval letter from a lender. The sellers will be more willing to negotiate with buyers who have proof that they can obtain financing. Final approval occurs after the offer is accepted, the appraisal and title work are completed and the file has been reviewed by an underwriter. Below are 5 areas that the lender will review:
- Proof of Income
Borrowers need to provide 2 years of W’2 and tax returns, recent paystubs that show current and year to date income and proof of additional income such as dividends, interest, bonus, child support, etc.
- Proof of Assets
Borrower need to provide bank and investment statements to show they have the funds for the down payment, closing costs and cash reserves. FHA loans require a minimum of 3.5% down while conventional home loans require a minimum of 5% down. There are some 3% conventional down programs for those with moderate income. Most loan programs allow for gifting from a relative to assist with the down payment. The lender will provide a gift letter for the donor to complete to prove the funds aren’t a loan.
- Good Credit
Most lenders provide the lowest interest rates for borrowers with credit scores of 740 or higher. Credit scores below 740 will pay a higher interest rate. A good lender will work with borrowers who have lower credit scores and make suggestions on how to improve their score. Limit credit inquires and don’t apply for new credit until after you’ve closed on your loan. Your credit will be checked again prior to closing.
- Employment Verification
In addition to paystubs, your lender will verify with your employer that you are still employed and your income. Lenders want to ensure they are lending money to borrowers who have stable employment. Self employed borrowers will need to provide additional paperwork regarding their business and income.
In addition to the documentation mentioned above, your lender will need a copy of your driver’s license or passport. To ensure a smooth mortgage process, it is essential the borrower provide any additional documentation requested by the lender on a timely basis. Lenders will require a paper trail for any large non payroll deposits that show on the bank statement. Minimize transfers between bank accounts.