Guide to a Mortgage Pre-Approval

Here’s why:

• It determines how much home you can afford
• It tells sellers you’re serious
• Many real estate agents won’t talk to you without one

Mortgage approvals: What you need to know

Buying a home can be both a rewarding and a scary process. It’s not easy letting perfect strangers comb through your finances. But the process can be fairly simple if you know what you’re in for.

This guide will walk you through everything you need to know for a successful mortgage approval:

Proof of income

Be prepared to show proof of income when applying for a mortgage pre-approval. Here are some documents you should have ready when meeting with a mortgage loan officer:

• 30 days worth of current pay stubs
• Tax returns for the last three years
• W-2 statements of the last two years
• Bank statements for all checking, savings and investment accounts

If you receive any other forms of income, such as alimony or bonuses, be prepared to show proof.

Proof of assets

Buyers must be able to show that they can afford to buy a home, including the down payment, taxes and other closing costs. Most lenders will require up to 90 days of bank statements as proof that you have the cash you need. Any large deposits or withdrawals within the last 90 days will be scrutinized and may require additional documentation.

If you’re receiving money as a gift from a family member or a friend, you must fill out and sign a gift letter, which certifies the funds are, in fact, a gift and do not need to be repaid.

A credit report

The mortgage lender will run your credit report during the pre-approval process, so in order to avoid any surprises, it’s important to know what your credit report includes.  You can get a free copy of your credit report every year from annualcreditreport.com.

Since lenders reserve the best interest rates for customers with the best credit, it’s important to know what your credit report says before you visit a lender. Most lenders require a minimum credit score of 620, however programs do exist to borrowers with scores as low as 580.

Employment verification

Lenders need to ensure they are making a good investment. Even though you’ve already provided proof of income, including pay stubs, the lender will need physical employment verification. This typically includes a simple phone call to your employer, but may also require a written confirmation. Self-employed borrowers will need to provide much more paperwork about their business and income potential.

Other documentation

Here are a few other documents you should have with you when you apply for a mortgage pre-approval:

• State or federal ID
• Social Security Card
• Rental agreement (if you currently rent)
• Statement of all debts and monthly payments.

A pre-approval is a never a guarantee. But now that you know what’s needed to get the mortgage pre-approval process started, the experience should be a much more pleasant one.