How to Get Pre-Approved
When purchasing a house, you want the purchasing power needed to make the house you want your home. While a small group of people are able to put down cash for a home, most people require the use of a mortgage. When buying a home, the sixth step you will need to take is to get pre-approved!
If you’ve missed the previous five steps you can find all of our resources for each step here.
Pre-approval is a way for lenders to prove that you can indeed afford the home you are putting an offer on. After meeting with a lender (step five), you will submit a list of needed documents to show the lender what your finances look like.
Once a lender has determined you can afford the mortgage payments, they will write you a pre-approval letter. Not only do lenders want to know you can afford a home, but home sellers also want to know too!
It would be a huge disappointment as a seller to take their home off the market for thirty days to find out at the end that the buyer cannot actually afford their home. That is why having a pre-approval letter in hand before putting an offer can make your offer more attractive. In many cases, sellers will not even consider your offer without one!
The pre-approval letter will tell the owner of the home a lender has reviewed your finances and approved you for a loan. Other specific information that may be included is:
Identifying the Borrower
Identifying the Lender
Loan type
Loan program
Loan amount
Type of Property
Purchase Price
Interest Rate
Term— Length of the loan (months or years)
Expiration date of the pre-approval letter
These details will provide the seller the peace of mind that you can afford the house and that the loan will be funded at the end of closing.
Now, in order for a lender to determine your eligibility, you will need to provide ample documentation about your finances. There are a variety of documents that a lender can use to determine your loans. Oftentimes the loan program you choose will also impact what documents are needed for determining your eligibility. A conventional loan may have different document requirements versus an FHA, USDA or VA Loan.
Check out our blog post on loan types to get a quick overview of the most common loan programs used.
However, there is often plenty of overlap in the documents required during the preapproval process. A general list of documents you may be asked to provide are:
State Issued Identification - Driver’s Licence, Passport, etc.
Social Security Number
Proof of Residence - current address, rental history, etc.
Credit Information - Such as mortgage statements, student loan documents, etc.
Letter of Explanation - If payments, collections, or judgements have negatively impacted your credit score
Bank Account Information - Most recent bank statements (Previous 30 days or longer depending on Lender)
Proof of Income - Pay stubs, electronic payments, tax records
Monthly Expenses - Rent, credit cards, students loans (anything not included in other documents)
Gift Letters - If another person is supplying a financial gift for helping towards down payment/closing costs
Property Tax Bill - If you already own property
Retirement/Investment Account Statements
Tax Returns - 1040
W-2 or 1099 Forms - Within the last two years
Profit and Loss Statements - for Self-Employment
Investment Property Income
Divorce Statements, Child Support, Alimony
Bankruptcy and Foreclosure Statements
Settlement from Previous Home Sale if Applicable
If you are applying for a Veteran Association Loan you will be required to submit documentation regarding your discharge from the military, your active or reserve status, or documentation if you are a surviving spouse of a Veteran. For FHA or USDA Loans the process may be more stringent, and require more documentation, due to the backing by government programs.
Remember, this is just a general list. You may be asked to provide more or less depending on your lender, your financial situation, and your loan type. As always, we recommend that you do your own research to gather the information relevant to your specific situation. A great lender will meet with you in person and answer any questions you have regarding pre-approval and documentation needs.
If you need any recommendations of quality lenders feel free to reach out! You can find us on Facebook, Instagram, and our Contact Information right here on our website.