When you are serious about buying a home, the very first thing you should do is get preapproved for a mortgage. Many real estate agents won’t even show you houses unless you have a signed pre-approval letter that shows you are a serious buyer and aren’t just window shopping.
The preapproval process takes a detailed look at your financial situation, your income, your debts and, in some cases, your investments. This helps your loan officer determine how large of a loan you could potentially be approved for. The preapproval is different than a prequalification, and takes a little more time to complete, but with it you’ll be ready to move quickly when you do find the house you want.
While some mortgage companies look at a varying set of documentation for the pre-approval, here are the most common assets that your loan officer will be looking at.
- Pay Stubs: Your loan officer will need to see a steady income from the last few months. While the timeframe varies, be prepared to share at least 30 days of pay stubs.
- W2s: Again, loan officers want to see a steady income for the past few years. This is a sign of stability and will help you secure a more solid preapproval.
- Bank Statements: Your loan officer will likely require you to submit the most recent or the last two statements from your various bank accounts.
- Investments: If you have any additional assets in investments this is also helpful for loan officers to get a complete view of your financial health.
- Credit Report: One of the first things your loan officer will acquire, your credit report helps identify any debts you currently have. Compared this with your income and you get the debt-to-income ratio which is a very important calculation when it comes to your preapproval.
- Personal ID: You will also need to send a copy of your driver’s license or passport.
- 2 Years Tax Returns (Self Employed Applicants): If you just started a business you might find it hard to be approved for a loan because lenders need to see that the business is a reliable source of income. The time frame lenders look at is the last two years and they want to see both personal and business tax return statements. Even if you just started a business and you already have an income, this income won’t be counted in your application if you don’t have two years of returns.
Once you’ve collected all of this information, you will be on your way to being preapproved for your loan. Typically, all of this can be uploaded to your mortgage provider’s secure website where the materials will be reviewed accordingly. Your loan officer may request additional documentation, but for many, these materials are enough for the preapproval part of the process.
Once preapproved, your loan officer will walk you through the numbers and help you understand the preapproval letter. At this time your loan officer may explain that certain conditions need to be met in order for the preapproval to become a full approval. For example, perhaps you need to sell your house before buying the new one.
Whatever your situation, get prepared by pulling together all of the documentation you need and find a local mortgage lender to walk you through the process. Now you’re on your way to homeownership!