Almost all buyers take the step of getting a mortgage pre-approval before they begin to look for a home. It just makes good sense to focus on homes you know you can afford and for which you have a high likelihood of being approved for lending. Read on for a better idea of what is needed for your home loan pre-approval.
What is a Preapproval?
First, it's vital that buyers do not think the pre-approval is a guarantee of a home loan. It does have benefits for buyers, however. The pre-approval process is not only great at clueing buyers in on how much they can pay for a home, but it also gets the buyer ready to apply by identifying issues that should be resolved before they take that next step. Applicants can, for example, work on their credit score, correct erroneous credit report information, gather needed proof of income, and more.
What is Needed for a Pre-approval?
- Employment Information – Lenders need to see stable employment. That doesn't mean you should be employed by the same company for many years, but you should, at least, show that you have a history of working within the same general career field. Be prepared to list your employers for the last several years (lenders vary in how far back they want you to go). Also, know that eventually, the lender will contact those listed for verification of employment purposes, so provide good contact info for them.
- Income Information – You also must show your income for the last few years (often, it's two years but that varies). Lenders usually request your income tax returns, 1099's, or bank statements for verification.
- Asset List – The more assets you own, the easier it will be to get a pre-approval and loan. That is because things like home equity (perhaps in a vacation property), savings accounts, investments, and other forms of assets can be used to pay the mortgage if you should lose your job. When it comes time to fill out your loan paperwork, be ready to provide permission to access your bank accounts or confirm you have down payment money or money to pay closing costs.
- Your Credit Report – You will be allowing the lender to access your credit report to check your score and any negative items.
- Your Budget – Almost as important as your income is your monthly budget outlook. You will be asked to list your revolving bills such as credit card payments, utilities, auto loans, and more. This allows the lender to learn how much of your budget is available to make the mortgage payment.
To find out more about what you will need before you apply for a mortgage pre-approval, speak to a mortgage broker in your area.
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