Is this summer the summer you’re going to buy your own home? Why not? Mortgage rates are still low and rents are skyrocketing. Before you start scoping out for sale homes online and attending open houses, you should be looking into getting pre-approved. Getting pre-approved means that a lender has looked at your financials and has deemed you creditable for a loan. This is beneficial for potential buyers because this means they can discuss with the lenders different loan options and budgeting. Buyers are also alerted to any problems with their credit they may have. Buyers can obtain a pre-qualification, which gives them an estimate of how much they can afford, but a pre-approval is more valuable. Final loan approvals don’t occur until an appraisal is done and the loan is applied to a specific property.
Proof of Income
Buyers can’t receive a pre-approval without documentation of income. So be prepared to bring W-2 forms from the past two years. You’ll also need your recent pay stubs that show year-to-date income as well as proof to any other additional income such as bonuses or alimony, plus tax returns from the previous two years.
Proof of Assets
You’ll also need bank statements for investment accounts that prove you have enough money for a down payment. Today, many loans accept down payments smaller than 20%, some as low as 3%. If you do receive money for the down payment from family or a friend, you’ll need a gift letter from the sender to prove it is, in fact, a gift and not a loan.
If your credit score is above 740, lenders have reserved a special interest rate for you. If your credit score is not quite as high, don’t worry, it does not mean there is an automatic interest rate hike. Buyers with credit scores lower than 580 may be required to pay a larger down payment. Having good credit is crucial to securing a good loan, many lenders require a credit score of 620 in order to be approved for an FHA loan. If your credit score is not as high, many lenders will work with you to help improve your credit score and secure a better loan.
Lenders will also want to contact your employers along with paystubs. Lenders want to contact your employer just to verify that you still work there. If you have recently started a new job, lenders may want to contact your current and previous employers. Self-employed borrowers may have to provide extra paperwork and proof of income. The reason lenders require extensive proof of employment is because they want to make sure they are loaning to people who are employed and can afford the payments.
In addition to your proof of income, credit, assets and employment, lenders will also need your identification such as a driver’s license and your social security number. Once you have gathered all the things you need, it’s time to start shopping for potential lenders. Additional paperwork may arise during this process, it’s best to respond promptly to ensure the smoothest process possible.