How To Get Pre-Approved For A Mortgage
Having been involved in Bay Area Real Estate for over 20 years, and with a good few of those as a lender, this is not my first rodeo creating a guide on getting pre-approved for a mortgage home loan. However, the following information about how, why, and what you need to be pre-approved for a mortgage is always critical for any homebuyers!
Getting preapproved for a mortgage is a crucial step in the home buying process. It not only gives you a clear understanding of your purchasing power but also makes you a more attractive buyer to sellers, and with low housing supply and over 25% of home purchases procured with cash, buyers need every edge they can get to win the most desirable properties.
Below, we’ll discuss the documentation needed for a home loan application and provide some tips to make the process smoother, to help you buy the home you want. As always, if something else is on your mind, we are here to answer your real estate questions.
THE IMPORTANCE OF GETTING PREAPPROVED MORTGAGE: REALTOR TIPS
Loan pre approval is one of the first steps to buying a home. When you feel like you’re getting close to buying, it’s time to assemble your team, which includes a Realtor and Mortgage Broker.
It’s important to remember that the mortgage market can be complex and opaque or even deceptive at times. Partnering with a reputable mortgage broker is of paramount importance. If you do not yet have a lender whom you trust, we are happy to recommend you to vetted, locally based mortgage professionals who can help determine what you can comfortably afford in today’s market.
In my opinion it's never too early to get pre-approved. By doing this early you and your mortgage professional can address any issues that might arise on your credit report or loan documentation in advance, before you start looking. In order to garner the best interest rates you’ll need a FICO score greater than 740. A credit pull well in advance will enable you and your mortgage professional to address any derogatary or late payments you have that could be impacting your FICO score and preventing you from obtaining the best interest rate available.
ASK YOUR MORTGAGE LENDER FOR A PRE-UNDERWRITE
Once you have been pre-approved by your mortgage lender it’s highly advisable to go one step further and get a pre-underwrite. This differs slightly from a pre approval in that your file will go directly to a lender who will review all your assets and income and issue a full loan commitment subject to you finding a home. This gives you even more leverage as a buyer because you now have a guarantee directly from the bank that they will lend you money subject to you finding a home. It also eliminates one step of the process allowing you to make your offer with no financing contingency and to close faster as youve already eliminated one step of the process. In a competitive market it's all about leverage and whatever you can do to make your offer as attractive as possible will get you closer to having it accepted!
DOCUMENTATION REQUIRED FOR MORTGAGE PRE APPROVAL
Securing pre-approval for a home loan requires you to provide a range of documents and complete certain paperwork. While this may seem tedious, it’s a necessary step in today’s financial climate. The era of No Income, No Asset Verification (NINA) loans is behind us, meaning you’ll need to provide concrete proof of your financial standing to secure a loan.
Pre-approval Document Cheat Sheet
Here’s a handy guide to the documents you’ll need to gather for your mortgage pre approval
For Employees:
Two most recent pay stubs
W-2’s for the past 2 years
If employed for less than 6 months your offer letter from new employee
For Self-Employed, Independent Contractors, or Other Alternative Income Earners:
Last 2 years’ tax returns
Year-to-Date Profit and Loss Statement
For All Applicants:
Two most recent statements for all banking accounts, CDs, money market, and/or securities brokerage accounts
Most recent statements for all retirement accounts (IRA’s, SEP-IRA’s, 401-(k)’s or 403-(b)’s)
Any and all K-1’s partnerships returns (1065’s) and/or corporate or S-Corp returns (1120’s or 1120-S’s) from the past 2 years
Mortgage, real estate tax, and insurance premium statement for all properties currently owned
Leases on all rental properties you may own
Complete bankruptcy papers, if applicable
Divorce decree and settlement statement, if applicable
Name, address, and phone number for your landlord(s) covering the past 24 months
12 most recent canceled rent payment checks or bank statement if your landlord is a private party
Copy of your state-issued driver’s license or passport and your date of birth to satisfy Patriot Act requirements
If not a citizen: copy of resident alien card (front and back); resident alien application or H1B or L1 Visa Passport
Remember, this is a general list and not all items may apply to your specific situation. Your mortgage broker will be able to provide more tailored advice.
MAKING INFORMED DECISIONS: THE ROLE OF YOUR REAL ESTATE AGENT
With a clear understanding of your financial situation and comfort zone for buying, we can collaborate more fully as your trusted Realtor, guiding you towards properties that align with your needs and budget. By focusing on homes within your budget, you’ll become a more informed home buyer, gaining a deeper understanding of pricing and market value specific to your price range. This knowledge empowers you to make smart, confident decisions.
As always, if you have any questions about the local market or need assistance at any stage of your home buying journey, don’t hesitate to reach out. We’re here to help you navigate this complicated, Bay Area real estate market!
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