Buyers are often excited to begin their search for a new home, but tend to forget the first and most important step to the buying process: mortgage pre-approval. In this process, a lender will ultimately determine the buyer’s housing price range, which, as we discussed in 5 Key Strategies For First-Time Homebuyers, makes the house hunting experience much more efficient and effective. By following these five steps, you have a significantly higher chance of getting pre-approved for a mortgage.
- 1. Proof of Income: All borrowers should be prepared with a W-2 Form, which details the borrower’s income for the past year. In addition, borrowers must present proof of any extra forms of income, such as monthly or annual bonuses, and sometimes tax returns for the past two years.
- 2. Proof of Assets: All lenders today require bank statements that prove that all borrowers have the funds for down payments and closing costs. If a borrower requires financial assistance from a family member or friend, that borrower will need a gift letter to prove that the given money is not a loan. An unsecured loan isn’t an acceptable source for a down payment. However, a common option that is acceptable is a 401k loan.
- 3. Good Credit: Today, the best interest rates are reserved for borrowers with the best credit scores, ranging from 740 to 850. Although borrowers with lower credit scores can qualify for a loan, they usually pay higher interest rates or discount points to the lower rate.
- 4. Employment Verification: All lenders will require borrowers to present their pay stubs and employer’s phone number. This is important because it allows the lender to ensure that the borrower is still employed and earning a salary.
- 5. Documentation: Lenders will need a copy of the buyer’s driver’s license, social security number, and signature in order to pull a credit report. Borrowers should be prepared to provide any additional paperwork the lender requests prior to the pre-approval meeting.
Overall, if you are looking into the home buying process, you should first follow these five steps and reach out to a lender near you. If you have any questions about the pre-approval process or anything related to the home buying process in general, please contact our home mortgage specialists.
