When it comes to home shopping, it always begins from the lender’s office with a mortgage application instead of going to an open house. Many sellers expect the homebuyers to acquire a “pre-approval” for the financing. They are also ready to negotiate with buyers who can prove that they can easily get a loan.
Regarding pre-approvals, buyers must first complete the mortgage application and offer proof of employment verification, assets, good credit, crucial documentation, and confirmation of income. Let’s learn more about these pre-approval incomes in detail.
- The Proof of Income
If you have a much better mortgage pre-approval, you must provide evidence of your income. You must provide the W-2 wage statements and tax returns for the past two years. Besides that, you also have to show the existing pay stubs, which contain information about your income, the year-to-date income, and extra income sources like bonuses or alimony.
- Proof of Assets
A borrower’s investment account and bank statements must prove that he/she has the funds needed for cash reserves, closing costs, and the down payment. Here, the down payment is viewed as the selling price’s percentage, which differs greatly from one loan type. Most of the loans want the buyers to buy a PMI or private mortgage insurance when they don’t go down below 20% of the buying price.
- Proof of Having Excellent Credit
To have a better mortgage pre-approval, you must have a FICO score of 620 or much higher than that to get approval for the conventional loan. Otherwise, they can also show proof of having a credit score of 580 to get approved for the Federal Housing Administration or FHA loan. For all customers with a credit score over 760, the lenders will reserve the lowest interest rates for them.
- The Employment Verification
The lenders will not just verify the employment through the pay stubs of the buyer but will also call the employer to confirm the salary and employment of the buyer. Self-employed buyers can provide extra information, such as:
- The ability of the business to distribute and generate income continuously
- The stability of the borrower’s income
- The nature and location of the business
- The monetary strength of the business
- Other Important Documentations
Personal identification and documents are needed to complete the pre-approval work, including the borrower’s driver’s license, authorization, and social security number. All these documents will enable the lender to create a credit report.
The mortgage pre-approval is viewed as an examination of the finances of the homebuyers. Lenders need five essential items to complete the pre-approval process: proof of income, credit score, assets, employment verification, and other personal documentation.