The First Step in Buying a Home: Mortgage Pre-Approval
A List of Items Needed for Pre-Approval
So, you’ve decided to buy a home and the first step on your journey is estimating your own budget. Please, contain your excitement. Once that is done, you’ll want to start looking at homes within your price range. For those of you who look at homes on Zillow that you know you clearly cannot afford, you are not alone. Our day will come! Until then, we will stick to the budget. But, before you can make an offer on a house, there’s one more thing that needs to be taken care of — getting a mortgage pre-approval letter from a lender.
A pre-approval letter from a lender indicates how much money they would lend you based on certain criteria such as your income, credit score, debt and savings. This document is important for buyers and sellers alike as it shows that you have the means to purchase the home. Most sellers and agents won’t even consider an offer unless the buyer has been pre-approved, so it’s best to get this out of the way first.
The Difference Between Pre-Qualified & Pre-Approved
It’s important to note that getting “pre-qualified” is different from getting “pre-approved.” A pre-qualification letter is an informal assessment of your financial situation by a mortgage lender or broker while a pre-approval letter is more formal and in-depth; it requires documentation like W2 statements, pay stubs, tax returns, bank statements etc., which are then verified by the lender. As mentioned above, sellers and realtors prefer pre-approvals since they provide better proof of the buyers’ ability to afford the home than pre-qualifications do.
What Information Do You Need?
The documents required for mortgage pre-approvals may vary slightly from one lender to another (I say ‘slightly’ because there are many regulations in place to ensure each borrower is given the same treatment regardless of who they go with), but generally include items such as recent pay stubs (at least 30 days old), W2 forms for 2 years prior; 2 months worth of bank statements for all accounts; tax returns for two years prior; photo ID; information about current debts such as student loans or credit card debt; rental history if applicable; and finally (deep breath, deep breath) proof of other assets such as stocks or bonds. It also helps if you already know what type of loan you want (fixed rate vs adjustable rate) so that the process can move along much more quickly. Lenders will show you at least three separate options for you to choose from to ensure the route that you go with is in your best interest.
Here’s a breakdown of the above items if you decide to print this out and treat it as your personal check-list:
- Pay Stubs
- W2 Forms
- 2 Months of Bank Statements
- 2 Years of Tax Returns
- Photo ID
- List of Debts (i.e. student loans, credit cards, etc.)
- Rental History (if applicable)
- List of Assets (i.e. stocks, bonds, REIT’s, etc.)
Getting Pre-Approved For Your Home Purchase
Getting a mortgage pre-approved is an essential step when buying a new home — it lets both buyers and sellers know exactly where each party stands financially which makes it easier for negotiations down the line. Before making an offer on any property, make sure you have all your financial documents ready so that lenders can assess your qualifications quickly and accurately. Don’t forget that getting “pre-qualified” is different from getting “pre-approved” so be sure to ask lenders about their specific requirements before proceeding with either option! See, doesn’t seem so scary now, does it?
*This is not financial advice. For educational purposes only.