What to Know About Getting Pre-Approved

When it comes to buying a home, getting pre-approved for a mortgage can be a game changer. When you receive that magical pre-approval letter, it’ll give you a very good estimate of how much you can borrow, it’ll give you clear expectations on homes in your price range, and it’ll give you a competitive edge when putting in an offer in an ultra competitive market.

But in order to get pre-approved, you’ll need to prepare lots of different documentation about your finances and wait anywhere between five to ten business days while your lender checks and verifies all the information. And if just one little thing goes wrong, your pre-approval request could go up in smoke.

In short, the process can get tricky and complicated real fast, which is why this blog is here to help you make sure you’re double checked everything you need and can submit all your information with confidence.

A Few Caveats to Keep in Mind

While there is a much simpler process known as getting pre-qualified, a pre-qualification letter doesn’t typically match up to a pre-approval letter for two distinct reasons:

• The mortgage loan amount indicated on a pre-qualified letter is much less accurate than that of a pre-approval letter, which could lead to an unwelcome surprise when a lender gives you an official rate to borrow from.
• When a seller is presented with two offers, one backed by a pre-qualified letter and the other backed by a pre-approved letter, the pre-approved letter usually wins, all things considered equal.

For these reasons, a pre-qualified letter could be seen as a way to scratch the curious itch of someone wondering how much they can spend on a home. Whereas the pre-approval letter shows the seller you have a much more serious commitment towards purchasing one.

If you’re still curious about the pre-qualification process and how it compares to getting pre-approved, then you can click here for a simple yet in depth breakdown of both.

With all that out of the way, let’s continue into the documents you’ll need to prepare.

ID

Probably the easiest information to have ready. Identification documents can be as simple as your driver’s license or your passport. If you don’t have either, then any government issued ID will work as well.

Determine Your Desired Loan Amount and Down Payment Amount

You may not need a fancy document for this part, but it’s an important step nonetheless. This might be where a pre-qualified letter could be helpful in terms of having an idea of your price range in both areas. Something to keep in mind is that you’ll be expected to put down anywhere between three to twenty percent of the down payment of a home when making an offer.

Contact Info For Employers And Landlords

Arguably the second easiest information to acquire. Lenders use this to verify your employment status. It’s important to note that some employers have a verification phone number that lenders can use, so you may want to send that information.

On a smaller note, a lender may want your landlord’s contact information as well to help verify your rental history. This information may only be necessary if you are a first time home buyer.

Tax Information

Depending on where your income comes from, the tax documents you provide will be different. If you work for an employer, you’ll need your W-2 documents from at least the past two years. If you work as a contractor or in freelance, then you’ll provide 1099 forms from the same time frame.
If you’re self-employed (more on that later) then you’ll need to provide 1040 forms from the past few years.

Proof of Income and other Assets

Now we’re getting into the big stuff. When applying for a mortgage, your lender is going to calculate your debt to income ratio. Put simply, your debt to income ratio is calculated by taking your total monthly debt and dividing it by your total monthly income. Not as simply, lenders typically prefer your DTI to be in the 36-43% range. But before we get too far, let’s start with the fun stuff: The documents showing your money growing!

Starting with basic income, you’ll be expected to provide pay stubs dating back to at least 30 days. If you work a job in which you only get paid once a month, then adjust by providing pay stubs from the past 3-4 months. Additionally, you’ll need to provide bank statements from the past 2-3 months that cover every checking, saving, or money market account you currently process.

Next are your assets. Depending on the person, the list of documents you’ll need could either be very long or very short. Think of your assets like this; If it’s making you additional income, you should probably include it. Some good examples of assets to include are:

• Child support or alimony income
• Real Estate that you make income off of (by renting it out to others perhaps.)
• Social security or disability checks (if applicable)
• Retirement or investment accounts (401K, IRA, etc.)

Gift Letter

If applicable, make sure to include a document called a gift letter. To put it in simple terms, if someone has given you money towards paying your down payment, then the lender will require that you detail this information in a document called a gift letter. The primary reason for this is so that the lender can verify that this additional money is a gift and not an additional loan that you’re expected to pay back.

Now, different types of mortgage loans have different rules regarding who can give you money and other specifications regarding this process. So make sure to do the proper research before including a gift letter document. But here’s a basic rundown of information to include in said document:

• Name of the person giving you money and your relationship
• The dollar amount and date that you received the money
• Stated purpose of the funds
• Stated in writing that the sender doesn’t expect to be paid back

Self-Employed

If you are self-employed, then unfortunately, you’ll have to provide even more information in the pre-approval process. Instead of providing pay stubs and employer contact information, you’ll need to gather additional documents and be prepared to thoroughly explain your business and how you make money. The following table details the list of documents and explanations you’ll need to have ready:

Documents	Details to Provide
Business License	The Product or Service You Provide
Profit-And-Loss Reports	Your Business Plan
Business Insurance (If Applicable)	Data Detailing your Industry and Demand for your Product/Service
State/Federal Insurance	Business Website
Articles of Incorporation (If Applicable)	Current Contracts with Customers (If Applicable)

Debts and Loans

Monthly expenses come in many ugly shapes and sizes, but here’s the gist of information you’ll need to be ready to include:

• Fixed expenses (rent/mortgage)
• Loan payments (Student, car, personal, etc.)
• Credit Card payments

Note that you don’t need to include personal expenses such as gas and food bills.

But regarding your credit, it’s important to understand that your credit score is going to be thoroughly examined by your lender and will play a big part in your final loan offer, or lack thereof.

Credit scores can be a rough subject for many. If your credit score is particularly undesirable, then it may be best to put your home buying dreams to the side and focus on building up credit first. However, it is also important to note that it is not impossible to be approved for a loan and ultimately buy a house with less than ideal credit.

For a better understanding of your options and how credit scores play in the pre-approval process, click here to learn more.

To Sum It All Up

The pre-approval process can be a lot for most people. It can take days to see that magical pre-approval letter assuming everything goes right. But if something goes wrong – missing paperwork, forgotten paperwork, etc. – then a delay in the process and that oncoming headache will be the least of your problems.

But here’s the good news. You don’t have to go in alone.

Dash Home Loans knows that the home buying process is difficult and confusing to navigate, especially for first time home buyers. And they’ve cracked the code in simplifying the process and helping you get closer to making the home buying dream a reality.

When you work with one of their specialized Mortgage Coaches, they’ll work with you every step of the way, including the pre-approval process!

They’ll make sure all the documentation tailored to your specific situation is accounted for and ready to go!

Opinions expressed are solely my own and do not express the views of my employer.

*Pre-approvals are given to clients who have met qualifying approval criteria, and specific loan requirements, at the time of applications. Results may vary.