BUYING A HOME: GETTING PRE-APPROVED FOR A MORTGAGE
You have determined the amount needed to buy the home of your dreams. Now, figure out the amount a bank can lend you. The rationale behind this is to find out what the bank will let you borrow before you begin looking for a house, so that real estate agents can show you houses that you can afford. And also, a seller won’t likely accept an offer from a buyer who has not obtained financing.
It is quite easy to get pre-approved. All you have to do is to call a few lenders and give them enough personal and financial information, along with supporting documentation. To make this process easier, prepare the following information:
- Zip Code – Place where you intend to purchase
- Down Payment – The amount you are putting down, expressed in percentage. The initial payment will depend on the existing market conditions and the type of loan.
- Social Security Number – Banks will use this to check your credit details for them to know your monthly debt payments and credit score. You must tell your credit score to the lending institution, so you won’t be needing to shell out money just to get this information. In case you have more than one borrower, the bank will account your lowest credit score.
- Employment Data – This includes your past and present jobs, line of work, and contact information for your current employer. By knowing your employment history, lenders can determine whether the mortgage will be settled or not.
- Income – Know your base monthly or annual salary before taxes if working for another person, or after taxes if self-employed. This should be consistent for two years to count for lenders to know the amount of home you can afford.
- Insurance – Do your own diligence and present estimates for homeowners’ insurance and tax rates. Although the lender can do these for you, it is better to do your own research to find out the figures yourself.
- Net Worth – Add up the amount of cash in all your accounts, including savings, checking, retirement, and brokerage. No need to provide account numbers at this point.
Let’s go to the pre-qualification. The loan officer will normally disclose a purchase price you can give. This should not be confused with pre-approval. Pre-qualification means you have finished the quick application process over the telephone, while pre-approval signifies an underwriter has evaluated supporting papers of your financial capacity, as well as secured a final number for the maximum account the bank will lend you.
During this phase, lenders will typically provide an primary good faith estimate, listing the loan amount you can secure, as well as the interest rate and the closing costs. These are all estimates, so borrowers are advised to be skeptical about these figures. When looking for the best lender, do not just choose the bank with the lowest estimate, but the entity that seems the most dependable, knowledgeable, and trustworthy. Ask family and friends for any recommendation, too.
Be wary of mismatching estimates. Some banks may say you qualify more or less than you think you should. If the bank says you qualify for less than you think you should, do not take this as a final answer. In a short span of time, you can do some things to repair your credit, such as reducing debts, increasing savings, and getting a higher-paying job in the same line of work. Conversely, if the bank says you qualify for more than you think you should, ask the process of computing the estimate.
Once you have pre-qualified, pass the underwriting test to secure a good pre-approval, enabling you to make an offer on a house the moment you find the right one. The following are a list of commonly requested documents:
- Last two months of statements for all asset accounts (savings, checking, brokerage, retirement, etc.)
- Last two years of tax returns
- Last two years of W-2 Forms
- Last two months of payslips
- Year-to-date profit and loss statement (if self-employed)
- 1099s for the last two years
- Photocopy of driver’s license
- Photocopy of Social Security card
The entire process, including paperworks, takes at least two weeks. One has to wait for at least one week to secure a pre-approval.
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