Ready to buy a home? One of the first things you should do is talk to a lender about getting pre-approved for a mortgage loan.
Pre-approval means the lender is confident you have the ability to make the necessary down payment and an income that can sufficiently cover your future mortgage payments.
What is a mortgage pre-approval?
In its simplest form, a mortgage pre-approval is when a bank or financial institution takes a look at your assets, debts, and income to determine your creditworthiness. Once their verification checks have been completed, they’ll be able to tell you how much you can borrow and what your interest rate will be.
Why is it important to get pre-approved before beginning your home search?
When you’re ready to make a purchase offer on a home, both your real estate agent and the seller will want to see a pre-approval letter. This document proves you’ll likely be able to make the purchase and, therefore, can be taken seriously.
While a pre-approval doesn’t guarantee you’ll get a mortgage, being pre-approved does have some advantages. Here are three reasons you might want a mortgage pre-approval:
- It gives you confidence in your search. When you know how much mortgage you can afford, you can look for houses within your budget. That way, you won’t have to deal with the heartbreak of falling in love with a house only to discover you can’t afford it.
- It puts you on the fast track to closing. Because most of your information is in the lender’s system, a mortgage pre-approval accelerates the loan process once you make an offer.
- It establishes your credibility as a homebuyer. A mortgage pre-approval shows home sellers that you have your finances in check, that you’re serious about buying a house, and that you won’t be denied a mortgage if they decide to sell you their home.
What documentation will you need in order to be pre-approved for a mortgage?
When speaking to your bank about a mortgage pre-approval, it is a good idea to have all of the following items on hand:
Identification:
- Driver's license
- Social Security Card or Number (or copy of your green card)
- Employment Verification
Income:
- Recent pay stubs
- Proof of Additional Income (Second Jobs, Commissions, Interest & Dividend Income, Social Security payments, VA & Retirement Benefits, alimony, or child support)
- W-2s from the last 2 years
- Last 2 years of Personal Federal Tax Returns with all pages & schedules
- If Self-Employed: Last 2 years of Business Federal Tax Returns with all pages & schedules
- Bank statements
- Stock portfolio statements
Summing up
When planning on buying a house, seeking mortgage pre-approval will be one of your first and most important steps. After all, it could potentially mean the difference between buying your dream house or losing out to another buyer.
