Getting a pre-approval is an important step in the homebuying process. Once you are pre-approved, you will get a pre-approval letter stating the amount a lender thinks you will be able to borrow. This is extremely important when determining your budget. Here’s how to get one.
Documents Required for a Pre-Approval Letter
Your lender will want full documentation that shows income verification and assets. Here are the required documents needed for a pre-approval letter:
- Tax returns
- W2 statements
- Bank statements
- Employer name and address
- If you are renting, the name and address of your landlord
Each of these items will be needed because your pre-approval letter will be based on your income, credit profile, and expenses. Lenders will look at the documents above and take each of them into consideration. They will also look at how much money you can put down on the house, job history, and debt to income ratio.
Helpful Hints During the Pre-Approval Process
Be honest about your finances. Money can be a touchy subject, but unfortunately, you need to be an open book when going through the homebuying process. There is no point in keeping anything a secret from your lender because they will eventually find out. The better option is to be upfront about anything unusual or bad they might find. This way, you and your lender can approach the problem head-on, and hopefully, come up with a solution.
Know your monthly and annual household budget and be ready to share it with your lender. This will help determine your comfort level for your monthly mortgage payments.
Be sure to include annual property taxes and homeowners insurance in your budget.
Have an emergency fund set aside to cover at least three months of mortgage payments.
Benefits of a Pre-Approval Letter
Once you have established a rapport with a qualified lender, they will continue to guide you through the financial process of securing a home loan. They will advise you on how to handle your money during the home buying process. They will also lock in your interest rates, and explain your loan options in detail. Here are just a few benefits of working with a great lender.
- They can increase your home buying power by securing you a loan with a low-interest rate.
- You will receive a completed credit check from them.
- Your lender can help you identify any flaws on your credit report and show you how to fix them.
- The pre-approval process forces you to have all your mortgage documents in order. Later on, this will expedite your home buying process when you make an offer.
Furthermore, pre-approval is currently required to view most homes for sale in California. You can read about that HERE.
Want to Get Started?
The Shannon Jones Team has a relationship with a number of lenders, each with access to different loans and programs. We can refer you to the right lender for you, and help you start your homebuying journey.