It Is Time To Get Pre-approved For Your New Home, What Do You Need?
It Is Time To Get Pre-approved For Your New Home, What Do You Need?
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It Is Time To Get Pre-approved For Your New Home, What Do You Need?
You have interviewed Mortgage Professionals (Loan Officers), and selected the one with whom you are the most comfortable. Now what do you need? Yes, the Mortgage Professional read off a list of things to bring, but you are not sure why. This article will help you to understand what you will need for your pre-approval, and why.
Why So Much Documentation?
Every piece of paper the Loan Officer collects will answer one of three questions:
The Loan Officer must answer these questions, and the method used to answer these questions will vary depending on your individual circumstances.
Assembling Needed Documentation
There are three categories of documentation you need for your Loan Officer:
Your personal situation will dictate what will be require of you to satisfy these categories. In order to meet the standards of the mortgage program, lender’s requirements, and the Government Compliance regulations; each document must be verified and validated,
ID (Personal Identification)
The basic would be your Driver’s Licenses, and Social Security Card; however, you may be required to provide additional documentation. If there are some variations in your name, from one ID source to another, this may require extra documentation.
Yes, you must use your legal name, because you are buying real property, and entering in to legal contracts. If your name is Jackson Edward Smith, your legal name (with middle initial) is Jackson E Smith, not Ed. Smith. You can really delay the whole process by not using your legal name. Because any documentation prepared with the wrong name has to be corrected, including the contract you signed with the Realtor.
In some cases, a Passport, and Visa may be needed along with the Driver’s License, and Social Security card, and maybe your Birth Certificate. Look at your particular situation, if there is something that needs explaining about your name; provide the needed documentation.
Income
If you are an hourly worker, working at the same employer for two years or longer, you will need your last 30-days worth of pay-stubs, your W-2 forms for the last two years, along with your full Tax Returns for the last two years. The most recent pay-stubs show that you are currently employed. The W-2’s prove how long you have worked for the same employer and the Tax Returns shows if you have any unreimbursed employer expenses, or deductions for a side business. Any business expenses, or unreimbursed employer expenses will reduce the amount of income used for qualifying you.
If you are self-employed, along with your Tax Returns, you will also need copies of your Business Licenses, year-to-day P&L (profit & loss) statement for your business. If your business is incorporated, you will need copies of the corporation papers, and possibly a certified letter from your CPA (Certified Public Account) regarding the percent of the business you own. If you work for a family member, who owns a business, you may be required to provide documented proof that you do not own more than 25% of the business yourself, other wise you may be treated as self-employed.
For persons self-employed, working for tips, working on commission, part of their income is made up of bonuses, the income fluctuates because of fluctuating hours, or shift-deferential, and truck drivers paid by loads and mileage; your income is based on the Tax Returns for the last two years, after expenses, and averaged over the two years.
The income category is the one that most often create issues later in the process, because the Applicant did not provide a full picture of how they are paid during the interview stage. That is why it is very important to take everything to your Loan Officer upfront for the pre-approval.
If you have other income you wish to use to qualify, you will need to document that income. For example, if you receive Social Security or other fixed income, you will need the “Awards Letters” for the last two years. If you want to use child support payments, you will need 12-months canceled checks, or a payment history printout from the State Child Support agency.
Assets
Your Loan Officer must be able to identify all of your assets, especially your liquid assets. Part of your qualifying is based on your ability to make the necessary down payment, and pay required Settlement costs. You will also have some upfront out of pocket cost associated with your home purchase, such as earnest money, appraisal fees, home inspection fees, utility deposits and etc. Therefore, your Loan Officer must be able to identify were these funds are coming from.
Asset documentation consists of:
The Application Package
The Loan Officer will make copies of the items you bring, and give you the originals back. As part of the pre-approval process, the Loan Officer will pull a tri-merge credit report, which is one report with compiled information from all three major Credit Repositories. The three Credit Repositories (Credit Bureaus) Equifax, Transunion, and Experian each have a credit score, and your qualification is based on the score that is numerically in the middle.
The Pre-approval
Once all information has been entered in to the system, the Loan Officer will review the data with you, and discuss the programs for which you qualify, and your mortgage options. You and your Loan Officer will decide on the program, and the maximum amount (based on your qualifying debt-ratio, and credit score) of buying power you have. Once the information has been evaluated, manually or electronically, your Loan Officer will issue a Pre-Approval Letter.
Pre-approval Letter
The Loan Officer will prepare a Pre-approval Letter, in which he/she will describe:
You would only show this letter to your Realtor so they will know what your boundaries are. When you get ready to make an offer, your Realtor will get another Pre-approval Letter from your Loan Officer, to match the offer. You do not want to give a letter that states you have been pre-approved for $250,000 if you are making an offer of $212,000.
Less Stress in Finding a Home
The old way of shopping, for a home, was to go looking until you found the perfect house; then you would cross your fingers, toes, legs, arms, and eyes hoping you could get it. Once you have been pre-approved, you know that all you have to do is find the perfect home in your price range. As you walk through a house you are being shown, your thoughts are, “is this the home for me?” not wonder if I can qualify for this one.
In addition, by getting pre-approved, your Realtor will be able to negotiate from a stronger position. She is able to say, “My client has been pre-approved for a home like this, if we can come to terms, we will buy yours, or will it be the one down the street just like yours?”
Finding A Realtor
Because Real Estate Professionals operate differently across the country, and around the world, it is advisable to learn the rules for your area. Therefore, the following comments are best followed by persons in the Southeast.
You want to sign a Realtor up as your “Buyer’s Agent” which means he/she works for you the Buyer, however, you do not pay them. The real estate sales-commission is paid by the Seller, no matter the number of Realtors involved. Some states have what is called a Dual Agency Agreement, which means the Realtor acts for both the Seller and the Buyer. This writer is of the firm belief, it is best for the Buyer to have his own Buyer’s Agent, to insure the strongest possible negotiation will take place, on the behalf of the Buyer.
If you do not have a Buyer’s Agent your Loan Officer should be able to provide to you a list of names to “Interview,” and you should ask friends and family for some recommendations. Once you have selected a Realtor, be open and honest with them about your needs, wants, likes, and dislikes. A well-informed Realtor, along with your pre-approval, should make the home shopping experience more enjoyable.