While searching for a home can be exciting and fun, serious purchasers should start their search at a lender's office rather than an open house. Most sellers want purchasers to have a pre-approval letter and are more willing to cooperate with those who can show they can secure financing.
Potential purchasers must produce documents demonstrating their assets and income, as well as solid credit and employment verification, to be pre-approved for a mortgage.
Here are the requirements for getting a mortgage pre-approval.
1. Proof of Income
W-2 salary statements from the previous two years, recent pay stubs showing income as well as year-to-date income, proof of any supplementary income like alimony or bonuses, and the two most recent years' tax returns are typically required of buyers.
2. Proof of Assets
Bank and investment account statements are required to show that the borrower has sufficient funds for the down payment and closing charges, as well as cash reserves.
The down payment varies by loan type and is expressed as a percentage of the purchase price. Unless the buyer puts down at least 20% of the purchase price, many loans require the buyer to obtain private mortgage insurance (PMI), pay a mortgage insurance premium, or pay a financing charge. Pre-approval is based on the buyer's FICO credit score, debt-to-income ratio (DTI), and other considerations, depending on the type of loan, in addition to the down payment.
3. Good Credit Standing
A FICO score of 620 or above is required by most lenders for conventional credit, and some even demand it for an FHA loan. Customers with a credit score of 760 or better often qualify for the lowest interest rates. According to FHA criteria, borrowers with a credit score of 580 or above can put down as little as 3.5 percent.
Higher down payments are required for those with poorer credit scores. Lenders will frequently deal with clients who have a low or somewhat low credit score, offering advice on how to raise their score.
4. Verification of Employment
Lenders want to make sure they're only lending to those who have steady jobs. A lender will want to see the buyer's pay stubs as well as phone the employer to confirm employment and salary. If a buyer has just changed jobs, the lender may wish to contact the old employer.
Self-employed buyers will have to present a lot more documentation about their business and income. Self-employed borrowers must typically provide at least the two most recent years' tax returns, together with all necessary schedules.
5. Additional Documentation
The lender will need a copy of the borrower's driver's license, as well as the borrower's Social Security number and signature, to access the borrower's credit report. Prepare to deliver any additional paperwork asked by the lender during the pre-approval session and later (as soon as possible).
At this point, consulting an expert is required. Please let me know if you need guidance in this extreme market. Click here to send me an email.