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The Importance of Getting Pre-Approved

When considering purchasing a home, a common question arises: should you get pre-approved? We think the answer is yes! A pre-approval signifies a lender's willingness to grant you a loan based on the information you provide. It provides evidence to the seller and the real estate agent that you have the financial means to buy a home and at what price.

Here are some of the documents you will need to provide for a pre-approval:

• A current pay stub to verify your current employment, calculate regular pay, evaluate additional income such as overtime or bonuses, and check for payments being withheld from your paycheck, such as 401K, loans, or child support.
• Your last two years' W-2s or tax returns to demonstrate a two-year work history without any gaps in employment; unless you recently graduated from college and are currently employed in your field of study. If overtime or bonus income is used, then an average of two years is calculated using the information provided in these tax documents.
• Your last two months' bank statements to verify that your down payment and reserves have been seasoned for at least two months and to check for any large deposits in your account.

You've submitted your application. Now what? 

Once we have the necessary documents listed above, we will pull your credit report to look for three to four sources of credit with at least a 12-month history on each account. The minimum credit score required will vary by lender and loan type.

Next, we will calculate your debt-to-income ratio, which is your monthly debt payments divided by your gross monthly income. For new home purchases, your monthly debt payments will include the new mortgage you are applying for, plus taxes and insurance (and, if applicable, private mortgage insurance, condo fees, etc.). This ratio will differ by lender and the loan type you choose.

Finally, once you have met all the requirements for the loan you are applying for, a pre-approval will be issued.

Obtaining a mortgage loan pre-approval is a crucial step in the home-buying process. It provides you with a clear understanding of your budget, increases your negotiating power, and ultimately saves you time and stress in the long run. This proactive step allows you to confidently navigate the housing market and find the home of your dreams.