Step-by-Step Series #1: Financing Your New Home Purchase – Purchase Your Home Faster with Mortgage Pre-Approval
You’ve scouted the neighborhoods and scanned the MLS. It’s time to make an offer on that new home you have your eyes on, right? Not so fast.
“Before you start looking at houses, the first thing you need to do is get pre-approved,” says John West, Director of Retail Loans at Direct Lenders LLC in Kennesaw, Ga. “Realtors want to see your pre-approval letter and know that you’ve got your financing lined up. They don’t want to show you a house that you can’t afford.”
Pre-approval for a mortgage takes just a couple of days, but it is an essential step for any homebuyer who plans to finance a new home purchase. To get pre-approved, potential borrowers must complete a loan application and submit copies of the following documents:
• Federal tax returns for the borrower (and spouse, if married), including W2 and 1099 forms, for the past two years
• All pay stubs for the past 30 days
• Recent statements (all pages) of retirement and/or investment accounts
• Statements for all bank accounts from the past two months (all pages)
• Any other information required by your financial institution.
Once this documentation is submitted, your lender will request your credit report and use all the information to determine your financial fitness as a borrower.
“The lender will determine what kind of loan you qualify for and how much you can borrow,” West said. “We don’t want to send anyone out on a false hope. In the pre-approval process, I will look over your credit and tell you what I think. If your credit is weak, I’ll tell you what to do to improve it.”
If you are pre-approved for a mortgage, the lender will provide a Pre-Approval Letter that gives the Realtor a specific price target for the new home.
It’s easy to get caught up in the excitement of shopping for a new home, but taking the right steps, starting with pre-approval, will save you time and money—valuable commodities when you are ready to purchase a new home.