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One of the best things you can do to prepare to buy a home is to get preapproved for a mortgage loan.
Mortgage preapproval isn’t required by most lenders, but it’s an excellent idea to go through the process before you begin your house hunt.
The competition for homes will be stiff in a seller’s market. Even in other market conditions, getting preapproved shows a seller that you’re serious about buying and that may give you the edge you need.
Whether you’re a first-time homebuyer or making a return trip through the mortgage process, help yourself by completing a preapproval checklist.
Mortgage preapproval vs. prequalification
Applying for prequalification—a similar but less significant process than preapproval—can give you an idea of the loan amount you might be qualified to get.
As you’ll learn below, the preapproval process requires documentation and a preliminary assessment of your finances, including your credit report. It’s more involved than prequalification which is typically done quickly and can be done over the phone or online.
Mortgage preapproval shows that you’ve gone through the more formal preapproval process and gives you a more accurate estimate of the loan amount you’ll qualify for.
Once you have an idea of your loan term and interest rate, plug the figures into a mortgage calculator and get an estimate of your monthly mortgage payment. This will help you budget and plan accordingly as you move through the homebuying process.
Perhaps the only thing that can help you stand out to a seller more than a mortgage preapproval is the Homefinity Cash Assurance program. This program goes a step further and offers sellers a cash guarantee on behalf of the buyer.
The Homefinity Cash Assurance program combined with a preapproval letter will help your offer stand out from the rest.
So, check out a complete mortgage preapproval checklist to see what you need to get the ball rolling to own your dream home.
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What to gather for a mortgage preapproval
The first thing you need to do in the preapproval process is talk to a mortgage lender. They’ll ask you for a variety of documents that paint your financial picture.
Let’s go through the items you need in detail.
Any mortgage lender will want to ensure they’re dealing with the right person. It’s smart, and it’s the law. Your identification needs to be government-issued and includes a photo of yourself.
Valid I.D. forms usually include a driver’s license, passport, or U.S. alien registration card. You’ll also need your social security card, or at least know your number, so they can check your credit history.
Pro Tip: You can check out your credit report for free once a year through one of the official credit bureaus.
Proof of income
Verifying how you make your living—your sources of income—is an essential part of the mortgage preapproval checklist.
- If you have steady employment from a conventional employer, the easiest way to prove this is with your pay stubs.
- An annual W-2 form is generally acceptable as well. You might also want to include recent pay stubs if there has been overtime or bonuses.
- Your two most recent tax returns (federal and state) could be required. Tax information should also include property tax, if applicable.
- Freelancers, self-employed workers, and independent contractors (including sole proprietors, S-corporations, and partnerships will need to show YTD profit and loss statements and two years of record.
- Real estate income documents (for example, 1099s), including addresses(s), lease(s), and current market values, if you want to use this income stream to qualify for a mortgage.
Documents of your assets
- Bank statements: Have 60 days of bank statements for every bank account you plan to use to qualify for your mortgage loan. Include any blank pages of your statements as well.
- Any retirement or brokerage accounts: Two months’ worth of statements from IRAs, investment account statements (i.e., stocks, bonds), or C.D.s. Last quarterly statements from 401(k)s with vested balance.
As part of the mortgage preapproval process, a mortgage lender will want to calculate your debt-to-income ratio (DTI).
This result is one of the most important metrics a mortgage broker or lender will use to calculate your eligibility.
So, let’s see what you need to show your debts.
- Your monthly debt payments: Prepare a list of all your debt payments, including student loans, mortgages, credit cards, and auto loans. Include creditor’s names and addresses with your account numbers, current loan balance, and minimum payments required.
- Any real estate debts: If you’re not a first-time homebuyer and your current property is mortgaged, bring your loan number, monthly payment amounts, loan balances, the name and addresses of the lenders, plus the declaration page of the insurance policy.
Other possible records
- If you rent your current residence, you must show a year’s payments and your landlord’s contact information going back two years.
- If you have been divorced, have the divorce decree with you plus (if applicable) any court orders for alimony payments or child support.
- Information on any bankruptcy or foreclosures
- Down payment gift letters, if applicable
Pro Tip: The bonus of collecting all of these documents is that you’ll have them ready to fill out the actual mortgage application.
Homefinity Cash Assurance and mortgage preapproval
One of the significant problems with mortgage preapproval is its growing popularity. More homebuyers are realizing their importance and including them with their offer to the homeowners.
To help buyers compete among the dozens of other buyers who have their preapproval letter, Homefinity’s Cash Assurance program goes one step beyond.
After completing Homefinitiy’s Edge* mortgage preapproval program, many of our clients choose to complete the Cash Assurance Program to give them a further buying advantage.
Homefinity’s Cash Assurance advantages
The Cash Assurance program allows the borrower to offer a cash guarantee on the home they make an offer on. This program can boost your offer above the others competing with you.
Significant advantages of this program include:
- You, the borrower, do not have to pay any additional fees.
- Homefinity is guaranteed to buy the seller’s home if the deal falls through for financing reasons by the closing date.
- If the seller decides not to take advantage of the guarantee, they can walk away from the deal with $10,000 cash and terminate the contract.
This new product might easily give you the edge you need to secure the home you want.
How do I get the Homefinity Cash Assurance?
The competition to achieve homeownership dreams is fierce. So many others are looking for the right home, and there might not be many good options where you want to buy.
To secure the home you want, you need the experience and passion of the Homefinity team. And even more, you need the Homefinity Cash Assurance to help you secure your first choice home.
Reach out to our loan officers today. Talking won’t cost you anything, and it might be the key you need to get the key you want—to your new home.
*Homefinity Edge Pre-Approval is based on a full review of the borrower’s creditworthiness and is contingent upon there being no material changes in the borrower’s financial condition or creditworthiness at the time of final loan approval. Final loan approval is subject to the following conditions: (1) borrower has identified a suitable property, and a valid appraisal supports the proposed loan amount; (2) a valid title insurance binder has been issued; and (3) borrower selects a mortgage program and locks in an interest rate that will support the pre-approved monthly payment amount. Loan must close before the expiration date provided in the pre-approval. Offer not available on FHA, USDA, bond, or DPA programs. Sale of home proceeds contingency not allowed. Gifts not deposited are not allowed. Please note that submitting verifying documentation is not a requirement to receive an estimate of closing costs associated with a mortgage loan.
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