The house buying process can be long and frustrating at times. The worst is when you find a house you love but by the time you get approved for a mortgage, another offer came in and the seller accepted it. The best solution to limit headaches is to get pre-approved for a mortgage.
When you get pre-approved for a mortgage, you are showing the seller you are ready and able to buy. And many sellers would rather accept an offer from a potential buyer that has already done their homework.
So what do you need to get pre-approved for a mortgage? The process varies by lender, but in all cases, you need the 3 things I list below.
To save you time, gather these documents up before heading to the lender so you can quickly get pro-approved and focus on finding your dream home.
3 Things You Need To Get Pre-Approved For A Mortgage
#1. Proof Of Income
The very first thing you are going to need to get pre-approved for a mortgage is proof of income. You will need W-2 statements for the last 2 years as well as a recent pay stub showing your income year to date.
You will also need to provide the last 2 years of tax returns as well as any other other income you earn.
Some might think this is overkill, noting the “no documentation” loans that many people used to apply for. These types of loans are no longer offered and as a result, you need to gather up your proof of income to get pre-approved for a mortgage.
#2. Good Credit
All lenders are going to look at your credit to determine your interest rate. The better your credit, meaning the higher your credit score, the lower the interest rate you will pay. And the lower the interest rate, means the more money you can save on interest charges.
While you don’t have to bring any documents to show your credit, you should still pull your credit report and verify everything is accurate.
You should also get your credit score so you know what it is. Ideally, you want a credit score of 740 or higher to get the best interest rates. If you are on the verge of this score, it might make sense to work on trying to improve your credit.
This can be done by making sure you pay your bills on time and reducing your debt load, among other things.
#3. Proof Of Assets
One final thing you will need is to prove you have the assets to make the down payment and closing costs. For this you will need to provide bank statements and investment account statements. They will want to see the last few months to fully review things.
If you had a large deposit during this time, they will inquire about that too, just to make sure it is legit.
Finally, if you have family members helping you with the down payment, you will have to disclose this. Many lenders want a written letter stating that the money being given is indeed a gift and not a loan.
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Difference Between Pre-Qualified And Pre-Approved
There is one more important piece of information about the home buying process you need to understand.
You might hear the term pre-qualified and pre-approved thrown around together. While they are both good things, you do not want to settle for getting pre-qualified.
Getting pre-qualified means someone simply estimated how much house you can afford based on some loose math you provided. At the end of the day, if you want to buy a house, you will still need to get approved for it.
In other words, getting pre-qualified does not help you out with speeding up the process and you can easily lose your dream house because you still have to go through the process I outlined above.
The bottom line is to get pre-approved as early as possible in the home buying process.
There are the 3 things you need to get pre-approved for a mortgage. I can’t stress enough how important it is to get pre-approved before you start your home search.
I have made the mistake of starting the home buying process without heeding my own advice. I found an amazing home that was under contract before I could get all my paperwork together. I vowed to never make that mistake again.
Take it from me, the more roadblocks and headaches you can avoid when shopping for a home, the better. And one of the easiest ones to avoid is to get pre-approved for a mortgage.