Shopping for your first house is always an exciting endeavor. However, your first step should be to get a pre-approval letter.
A pre-approval is when lenders assess your current income, assets, work stability, and other financial factors to determine how much money you can borrow for a mortgage, as well as what your interest rate will be. Getting a pre-approval letter is proof that you can afford a certain amount of home, and a lender is willing to work with you.
Why do you need to get pre-approved?
Many well-known mortgage lenders in Arizona, for example, recommend that you get pre-approved before you start looking for houses. Here’s why:
You can find the right home easily. It’s difficult to look for homes when you don’t know exactly how much you can afford, and it can waste a lot of time on both your and the seller’s end. With a pre-approval in hand, you can narrow down your choices to homes that you can actually afford, so you won’t have to waste time falling in love with one and then finding out it’s not within your budget.
It increases seller confidence. A seller will be much more accommodating when they see you are a serious buyer, and a pre-approval can prove that. They are more likely to give you a good bargain, accept your offer, or reserve the home for you because they know you can afford the property.
You can minimize homebuyer anxiety. When you are pre-approved, you won’t have to worry about suddenly finding out that you can’t buy the home that you want. You already know that you are qualified, and thus, you can spend more time worrying about other important stuff.
The closing period is faster. During the pre-approval process, you have to submit documents that are also required for the mortgage application. Since you’ve already sent the required documents, you can enjoy a faster closing period and move into your new house sooner.
What documents do you need for a pre-approval?
When you want to get pre-approved, here are the requirements that you need to bring:
1. Proof of income
W-2 forms and two recent payroll stubs (for W-2 wage earners)
Year-to-date profit and loss statement (for self-employed)
Address, lease, market value, and rental income (for landlords)
2. Proof of assets
60 days’ worth of banks statements for each account you’re going to use
Two months of statements from retirement and brokerage accounts (IRAs, 401(k), etc.)
3. Other debts and payments
Monthly debt payments (student loans, car loans, credit cards, etc.)
Rent payments from the last 12 months (if you are a renter)
Child support or alimony payments
Apart from these requirements, you need to give your lender your identification (drivers’ license, SSN, signature) to pull up your credit report. Getting pre-approved is the best way to ensure that your house-hunting process will be faster and easier. If you are planning to buy a house soon, prepare these documents to get a pre-approval and own your dream house in no time.