The first step in home buying is to determine how you will be financing the purchase of a new home.  If you will be financing with a home mortgage, you should always start the home search by speaking with a mortgage lender. A bank, mortgage company or lending agency provides home mortgages for buyers. As a first step, a bank representative, typically referred to as a loan officer, will review your financials and provide a pre-qualification letter. A pre-qualification letter will outline a rough estimate of how much you can borrow. Many sellers require a pre-qualification letter (or pre-approval letter) accompany any offer to ensure all offers are from credible buyers.

 

Getting pre-approved is even more favorable to a seller because pre-approval means the lender has looked deeper into the buyer’s financials. The lender will take into account a buyer’s income, past financial history, and current payment obligations.

 

Including a pre-approval letter with an offer demonstrates to sellers that you are a serious buyer.

 

A loan officer will need specific documentation in order to provide a pre-approval letter, almost all mortgage lenders will require the following:

 

1. Proof of Income

Be prepared to show your W-2 statements and tax returns from the previous two years, a few recent pay stubs, as well as proof of any additional money such as dividends, rental income, or other sources of funding.

 

 

2. Employment Verification

Stability is important to a lender. Lenders will want to verify that you are currently employed, and may contact your employer to confirm. You’ll want to have your employer’s contact information available.

 

 

3. Proof of Assets

Be prepared to provide bank and investment account statements to give the bank a detailed picture of your assets. The bank will be ensuring your ability to fund any down payment amount plus closing costs. Typically, the down payment and closing costs aren’t due until closing.

 

 

4. Credit

Previously establishing good credit is helpful. Lenders will collect your social security number and will obtain your credit report. The lender should share a copy of your credit report with you. The best interest rate mortgages are typically reserved for those with a credit score of 740 or higher. A good credit score is usually considered to be above 670. If your score is below 670, you may receive a higher interest rate as the bank will consider your mortgage riskier. If your credit score needs some work, ask your lender what the best options are for your situation.

 

 

5. Other Documentation

The bank will require a copy of your ID to make sure it’s you applying for the loan. Depending on your situation, a lender may require additional documentation for other assets or liabilities such as vehicles, stocks, student debt, and other items that are relevant to your financial picture.

 

 

 

Summary

 

A buyer can strengthen an offer by accompanying the offer with a pre-approval letter. During a seller’s market, it is especially important to stand out from other offers. Speak with a lender, and obtain a pre-approval letter early in the homebuying process in order to act quickly once you’ve found your next home.

 

 

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