Perhaps you’re thinking of buying a new home, before you even begin to look at homes, you should obtain a mortgage pre-approval letter first.
For homebuyers: A pre-approval letter shows that you’re serious about shopping for a home. It not only is in your best interest to get the process completed most realtors will require a pre-approval to search for houses and eventually put in an offer.
When you’re pre-approved for a mortgage, it means you have a written commitment from a lender that says they will lend you a specific amount of money to buy a home at a specified interest rate and for a particular length of time (such as 30 years).
A pre-approval letter holds more weight during the home search process than a loan pre-qualification which is an informal estimate from a lender stating how much you may be able to borrow.
Why else is pre-approval important?
You’ll know how much money you can borrow, so you’ll know how much money you can spend on a house. This will save you time and energy, since you won’t be looking at homes you can’t afford.
You’ll have a better idea of what your monthly mortgage payments will be. However, you need to realize that a variety factors (for example, down payment percentage, mortgage insurance, property taxes) influence your actual monthly mortgage payment.
Sellers prefer buyers who are pre-approved for financing. They also may be more willing to negotiate with someone who has pre-approval compared to someone who doesn’t. And in multiple-offer situations, sellers will likely favor someone who is pre-approved since it’s less risky.
Pre-approval signifies to your real estate agent that you’re serious about purchasing a home, so they’ll likely work harder on your behalf.
So, what does a pre-approval consist of? The lender will ask you to verify your employment and financial information. Because of this, pre-approval is more reliable indicator of your ability to repay a loan.
Here are some things that are required:
Personal information. Have your social security number ready, as well as proof of identity. Lenders will use this information to run a credit check. If you’ve recently changed your name, you’ll want to supplement your proof of identity with additional proof, such as a marriage license or divorce certificate. The credit check is necessary, since it will give lenders insight into your debt-to-income ratio, as well as your financial history.
Income information. Lenders are going to need proof of your income for the past two years, including all W-2s and/or alternate tax information, pay stubs, and information related to other sources of income that you may have.
Asset information. Finally, you’ll need to provide any documentation related to assets outside of your income, including any large monetary gifts or investments. You may be required to provide a letter from anyone who is gifting you with substantial funds to put toward the purchase of your home.
Having this information ready to go ahead of time will make you loan process go as quickly and smoothly as possible.