Consulting with a lender before you start the home buying process can save a lot of heartache later, so gather your paperwork, print some recent bank statements, and get ready to dig in. Click play to hear Kelley Wolfe from Guaranteed Rate’s top three reasons to get pre-approved, and read on to see what you’ll need during the process.
THE BONES OF PRE-APPROVAL
1. Where Does Your Money Come From?
“No verification” or “no documentation” loans are a thing of the past, so, to get started, all homebuyers need to be prepared with proof of income. You will need recent pay stubs that show income as well as year-to-date earnings, proof of any additional income such as child support or bonuses and your two most recent years of tax returns.
2. The Upfront Costs
You will also need to show bank and investment account statements to prove that you have funds for the down payment and closing costs, as well as cash reserves. Depending on the type of loan you choose, your down payment can range anywhere from 0%-20% of the purchase price. If you receive money from a friend or relative to assist with the down payment, you will need a gift letter to prove that this is not a loan.
3. Good Credit
Most lenders today reserve the lowest interest rates for customers with a credit score of 740 or above. Below that, borrowers may have to pay a little more in interest or pay additional discount points to lower the rate. But don’t fret! Lenders will often work with borrowers with a low or moderately low credit score and suggest ways they can improve their score.
To get pre-approved, your lender is also likely to call your employer to verify that you are still employed and to check on your salary. If you have recently changed jobs, a lender may want to contact your previous employer. Lenders today want to make sure they are loaning only to borrowers with stable employment. Self-employed? You will need to provide significant additional paperwork concerning your business and income.
5. You Are Who You Are
Your lender will need to pull a credit report. Don’t forget to bring your driver’s license and your Social Security card to your meeting with your lender. Be prepared at the pre-approval session, and later, to provide (as quickly as possible) any additional paperwork requested by the lender. The more cooperative you are, the smoother the mortgage process will be, and the less chance for delays in closing.