Articles

5 Things You Need to Be Pre-approved for a Mortgage

Shopping idly for a home may be pleasant, but serious homebuyers need to start the process in a lender's office, not at an open house. As a potential buyer you benefit in several ways by consulting with a lender and obtaining a pre-approval letter.

1. Proof of Income

"No verification" or "no documentation" loans are a thing of the past, so you need to be prepared with W-2 statements from the past two years, recent pay stubs that show income as well as year-to-date income, proof of any additional income such as alimony or bonuses and your two most recent years of tax returns.

2. Proof of Assets

You will need to present bank statements and investment account statements to prove that you have funds for the down payment and closing costs, as well as cash reserves. Your down payment, expressed as a percentage of the selling price, varies by loan type. Most loans come with a requirement that you purchase private mortgage insurance (PMI) or pay a mortgage insurance premium (MIP) or a funding fee unless you put 20 percent (or more) down.

3. Good Credit

Most lenders require a FICO score of 620 or above to approve a conventional loan and some even require that score for an FHA loan. Lenders typically reserve the lowest interest rates for customers with a credit score of 760 or above. FHA loan guidelines allow approved borrowers with a score of 580 or above to pay as little as 3.5-percent down. People who have lower scores must make a larger down payment. Lenders will often work with borrowers with a low or moderately low credit score and suggest ways they can improve their score.

4. Employment Verification

Your lender will not only want to see your pay stubs, but will likely call your employer to verify that you are still employed and to check on your salary. If you have recently changed jobs, a lender may want to contact your previous employer. Lenders want to make sure they are lending only to borrowers with stable employment. Self-employed borrowers will need to provide significant additional paperwork concerning their business and income.

5. Other Types of Documentation

Your lender will need to copy your driver's license and will need your Social Security number (SSN) and your signature allowing the lender to pull a credit report. Be prepared at the pre-approval session and later to provide (as quickly as possible) any additional paperwork requested by the lender. The more cooperative you are, the smoother the mortgage process will be