What’s the Process of Getting Pre-Approved for a Home Loan and What Will My Monthly Payment Be?
Your first step is finding a mortgage lender or broker. Please read my article, Why Get Pre-Approved for a Home Loan and How Do I Know Who Is the Right Lender For Me?
Once you’ve chosen a lender, you’re ready to submit a pre-approval application. My preferred lenders have the application process online, or, you can meet them them in person if you’d like or even do the application over the phone. Either way, you will provide details about the type of loan you seek, your income, etc.
This application requires you to disclose your name, addresses for two years, birth date, social security number and work history for the last two years, as well as information about your finances. Pre-approvals require a credit report for all borrowers. The loan officer uses the information provided on the mortgage application to obtain a credit report with all three credit bureaus. This report is analyzed by the lender’s underwriter to ensure the credit guidelines are met. The credit report includes the credit scores. Credit score requirements depend on the mortgage program applied for. The lender also looks at your payment history and checks to see if there are any major credit issues. Recent bankruptcy, foreclosure or unpaid tax liens are reasons to decline a loan.
In most cases, my preferred lender can run all of your information through an automated underwriting process and obtain an initial pre-approval, but then we still go further.
The lender will then give you a complete list of the documents they need shortly after you submit an application. Some documents are required by everyone, such as this list below but additional documents may be required depending on your personal situation. The basic, initial documents you’ll need to provide are:
Pay Stubs For Income Verification
If you are employed, the lender will require recent pay stubs and sometimes W-2’s for the most recent one or two years. The lenders calculate your base income and determine if any overtime, bonus or commissions can be used to qualify for the loan. Lenders may also require a two-year history of receiving commissions, overtime or bonuses before that income can be used to pre-qualify for the loan.
Plan on providing the last 2 years of your tax returns. Many types of non-employment income, such as interest and dividends, retirement income and social security income, require tax returns as well. If you own a company that files corporate tax returns, you may have to provide any corporate returns, including any K-1’s, income documents like a W-2 or 1099 that are issued to you if your company is a partnership or S-Corporation).
This would be a list of your employers for the pat two years including names, addresses and phone numbers.
You will be required to provide documentation of where the down payment and closing costs are coming from. The most common source documentation is bank statements or investment statements. Many lenders do not allow cash on hand (money kept outside of a banking institution) to be used for a down payment or closing costs. If a family member, company or non-profit is giving you a gift or grant for the down payment, you may be required to provide a gift letter and proof that the donor has the funds to give. Usually one or two months’ bank statements are required.
Depending on what your documentation shows, you may have to provide additional information. Teachers are often asked to provide their employment contract, since they can be paid over 9, 10 or 12 months, making calculating the income from a pay stub alone difficult. In addition, lenders may ask you to explain large non-payroll deposits, minor negative items on your credit report or a name variance. This is common for women who change their names when they marry and borrowers who share a name with a parent.
Self Employment Documentation. If applicable.
People who are self employed may have to provide additional or alternative documentation such as profit-and-loss statements, Federal tax statements and/or balance sheets for the past two years.
Divorce Decree / Bankruptcy Documentation. If applicable.
The loan officer and mortgage lender who underwrite your loan, if they are separate entities, are both required to provide you with documentation when you apply for a pre-approval. Both the loan officer and lender will provide you with a Good-Faith-Estimate, or GFE. This document explains the costs and terms of the loan you have applied and been approved for. You will also be provided a copy of your application and many disclosures, including notification of your right to a copy of the appraisal, servicing disclosure statement (discloses how many loans the company keeps or sells) and the Affiliated Business Arrangement (explains what third-party companies are providing you services). The loan officer has three business days from your application to provide you with a GFE, and the lender has three business days from when it receives the application to provide you with a GFE as well. Most changes to your loan amount, rate or terms will require a new GFE be provided.
Conclusion and Summary
I’ve thrown a lot of information at you with this article. So let’s summarize some of the key points. Mortgage pre-approval is a process in which the lender reviews your financial background (credit score, income, debts, etc.). They do this to find out whether or not you’re qualified for a loan. They’ll also tell you how much they are willing to lend you.
So, there is a bit of work to do upfront to make sure you can buy a house, but once it’s done, we can focus on finding you your dream home. Feel free to call me anytime for a no obligation consultation.
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