Looking at homes to potentially buy is fun, but serious buyers need to start off with their mortgage lender first. The best way to buy a home is to get a mortgage pre-approval first. That way, you already know how much house you can afford and what your loan options are. What's more, home sellers expect all potential buyers to have a pre-approved home loan letter in hand and will negotiate more readily with those who are approved for financing.
To get pre-approved for a mortgage or pre-qualified for a home loan is quite simple. Here's what you need:
#1 Proof of Income
Gone are the days when you could get a house loan without documents or with no income verification. Those policies are in part what led to the subprime mortgage crash. All borrowers these days need to have W-2s for the last two years, a few pay stubs from the last three months, and two years of tax returns. If you are self-employed, no problem, but you will definitely need to show proof of income on tax returns for the last two years.
#2 Proof of Assets
Be prepared to provide bank statements that should you have the funds to make a down payment and pay closing costs. Lenders also want to see that you have enough cash reserves to make a few mortgage payments if you lose your job. The good news here is that many available home loans today require very low down payments. FHA financing can usually be obtained with a mere 3.5% down payment. Even conventional home loans can now be obtained with 3% or 5% down, although 10% to 20% is more common. If you get help from a relative for the down payment, you probably will need a letter from them that states it is a gift rather than a loan.
#3 Decent Credit
The very lowest interest rates are usually for people who have credit scores above 740. But no worries if your credit score is well under that. You can still be preapproved for a home loan; you will just pay a slightly higher interest rate. If you have a credit score as low as 620, you still can be approved for an FHA loan with 3.5% down.
#4 Verification of Employment
For your home loan pre approval, mortgage lenders want to see that you have income, but they also may call your employer to verify you still have a job. They also may double check on your salary. If you changed jobs in the last year, the lender might contact your last employer. Lenders today are more careful to lend money only to people with stable jobs.
#5 Other Documentation to Get a Pre-Approved Mortgage
Your mortgage lender will want a copy of your driver's license and social security card, as well as those for anyone else on the mortgage. These are required for the lender to pull your credit report to qualify you. You should be ready during this process to provide any additional paperwork that is requested, and quickly. The more responsive you are, the more likely you will get a rapid pre-approved mortgage.
If you want to increase the chances that you will easily get a pre-approved mortgage and have a great home ownership experience, remember these additional tips:
Pre-approval for a home loan is really an easy process these day. As long as you have stable income and credit over 620 to 640, you should be able to get approved for a loan with a low down payment. Just keep the above mortgage pre-approval tips in mind for you to get into the home of your dreams faster than you ever thought possible.
Shopping for a new home is fun. But what about getting financing? Many potential home buyers put that off, but they shouldn't. It is important for your home buying experience to get with a mortgage lender as soon as you start seriously talking about buying a home.
Here's why: You will want to have a mortgage pre-approval before you start shopping for a house. In today's strong real estate market, most sellers will want to see that you have been pre-approved for a mortgage. In fact, some sellers may only talk to or negotiate with a buyer who has a pre-approval letter from a lender.
Thus, you will need to get pre-qualified and pre-approved for a home loan before talking to most home sellers. But what is the difference between the two?
Pre-qualifying is simply the first step in the process of getting a mortgage. To get pre-qualified, you will meet with your mortgage lender either in person, on the Internet or over the phone. You provide information about your assets, liabilities and income. Based upon this data, the lender can estimate roughly the loan that you can qualify for.
This is a rather informal process and is based simply on the information you give the lender. So keep in mind that your loan pre-qualification is only an estimate of what you may be able to borrow. Naturally, being pre-qualified does not carry the weight of a mortgage pre-approval.
A pre-approval means that your lender has verified your credit, financial and employment information as well as your documentation. This confirms you have the ability to qualify for a home loan and you will be approved up to a certain amount.
As you can guess, being preapproved for a mortgage is a more formal process. You need to complete a mortgage application and give the lender the essential financial documents for them to check your credit and finances. From this information, the lender can provide you with an amount that you are approved on. You also will get an idea of the rate you can qualify for; you may even be able to lock in your rate for 30 or 60 days.
Remember, there are no more 'no doc' loans. If you are getting a mortgage in 2017, you will have to provide full financial documentation. Of course getting a pre-approval for a home loan with bad credit is more difficult, but there are possibilities with some FHA programs. Find out if a pre-approval on a FHA loan is an option for your situation.
To get your mortgage pre-approval letter so you can shop for a home with confidence, you will likely need to provide the following information:
Proof of Income
Expect to need to provide at least a months' worth of pay stubs; it will need to show year to date income as well. Also, you will need two years of tax returns, and 60 days' worth of bank statements.
Also, you have to show two years of your W-2 statements. If you are self-employed, you can still get a mortgage, but you will need to show tax returns for at least two years, and a current profit/loss statement.
Be prepared to have bank statements and statements from investment accounts that prove you will have enough money for the down payment and closing costs. Depending upon where you get your loan, you may need to have cash reserves, too.
If you are getting money from a relative for the down payment, you have to get gift letters that state you have no obligation to pay them back.
It is very important to have a clear paper trail of where the down payment and closing cost money is coming from. You cannot use money from undocumented sources. Nor can you use money that you pulled from a credit card or from winnings from gambling. All sources of the money used to buy the house have to be from legitimate sources.
Remember, if there has been a change for the better in your finances – any significant deposit in your bank account for example – you will need to document where that came from.
Most lenders will give the lowest rate to people with the best credit score. You will need to have a credit score of 740 to get the best, lowest rates.
However, there are many loan options for those with lower credit. To get an FHA mortgage with 3.5% down, you need to have only a 580-620 credit score in many cases. We suggest speaking with some government lenders to determine if a FHA loan pre-approval is possible based on your scenario.
The lender will need to see proof that you are employed and will want to see what you earn. If you have switched jobs, the lender may want to contact your last employer. It is important today for lenders to verify that they are loaning money to people with a steady work history. If the lender does not show the government that they have verified your employment carefully, they could be heavily penalized if the loan goes into default.
Again, if you are self-employed, you will just need to document with tax returns, bank statements and profit/loss statements that you have a steady source of income.
After you have provided all of the above information to your mortgage lender, you should be able to get your pre-approval letter within two or three weeks. Once you have that letter, you can show it to any potential home seller whose home you are viewing.
With your pre-approval letter, you will be in a much stronger position to buy your dream home. Hopefully this article has helped you better understand how to get pre-approved for a home loan in today's lending environment.
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