If you need a loan to buy a home, your first order of business is to sit down with a lender and find out how much you can afford. Mortgage rates are starting to incline and depending on credit and down payments, the rate you see online may not be the rate you qualify for. In today's competitive market, all sellers want to see that you are ready and able to buy their home so it's important that you have your preapproval letter ready to go. Most agents will reject a prequalification letter so I thought it would be helpful to explain the difference between the two.
When you pre-qualify for a home loan, it means you’re getting an estimate of how much you may be able to borrow based on the information you provide about your finances and your credit check. It will help you establish your budget and know how much you may be able to borrow but the lender is only going off information you provide in an application and has not yet verified your true ability to pay.
Information needed for prequalification includes:
Credit check
Income information
Debts and assets
Bank account information
Down payment amount
The pre-approval process involves a lender investigating your income, assets, credit history, and debts before providing you with an amount they believe you can afford. Getting preapproved confirms to the seller that you’re serious about buying their home and that you can secure a mortgage, making you more likely to complete the purchase.
Some information needed for preapproval may include:
Credit check
Paystubs from the last thirty days
Bank statements from the previous two months from all accounts
Investment account statements from the last two months
W-2 and 1099 statements from the previous two years
Federal tax returns from the last two years
Driver’s license
Social security number
Total monthly expenses
Down payment amount
Additionally, if someone is helping you pay for the home, you’ll need a gift letter signed and dated by the individual assisting you.
If you are preapproved, you’ll receive a preapproval letter informing you of the offer to lend you a specific amount for sixty or ninety days, along with the type of mortgage the lender is willing to offer.
Keep in mind, the pre-approval letter does not guarantee a mortgage. If there is a change to your income, assets, or debt level before the closing date, a lender may decide to deny the loan.
Source: American Lifestyle