What is a Pre-Approval?
A pre-approval is a letter written on an individual's behalf by a lender or broker. The letter explains that upon reviewing an individual's finances, they are inclined to loan a specifiic amount to that individual to purchase a home.
When should I get pre-approved?
It is a favorable idea to get pre-approved for a loan when first starting to shop for a home.
Pre-approval displays to an individual which homes are affordable. It helps one submit an offer quicker. Bank-owned property (REO) require pre-approval in order to submit an offer.
How to Get Pre-Approved
Gather documentation proving financial readiness for a loan. Learn about different mortgage options. Locate a lender or broker. Working with a lender, examine home buying and financial goals. Fill out a loan application. Obtain the pre-approval letter from your lender.
List of documents and information you'll need:
Work History : W2 forms, Pay stubs, Personal tax returns
Credit Rating and History : Credit Report
Total Debt : Names, balances, and account numbers for all: Student loans, Credit cards, Car loans, Store lines of credit, Other debt with recurring monthly payments
Down Payment : Two month's bank statements for savings and checking accounts
Investements and Other Assets : Two months of statements for bonds, stocks, or other investement accounts. Retirement account statements - 401(k), IRA
Residence History for Previous Two Years :
For current homeowners -- Your lender will investigate if you are current on your mortgage, if there are no problems with the current home to interfere with the purchase of a new home, confirmation of the home's value, and plans for selling or leasing the property.
For renters -- Residence history for the past two years which includes addresses, dates of move-in and move-out, rent amounts, and landlord contact information. The lender may communicate with landlords to validate the history of consistent and prompt payment of rent.