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//Five (5) Things You Need to Know to Get Pre-approved

Five (5) Things You Need to Know to Get Pre-approved

Five (5) Things You Need to Know to Get Pre-approved 

Shopping for a property may be fun and enjoyable, but serious property buyers need to initiate the process in a lender’s office, and not in an open house. The majority of the sellers expect prospective buyers to obtain a pre-approval letter and will be a lot willing to negotiate with those who justify that they can acquire financing. 

Prospective purchasers need five (5) crucial things – proof of income and assets, good credit standing, employment verification, and other pertinent documents to be pre-approved for a mortgage. 

However, before we go to that, we need to know the difference between pre-qualification and pre-approval since a lot of people are getting confused about both terms. 

A mortgage pre-qualification may be useful as a ballpark figure estimate of the amount a person can afford to spend on a property. It simply means the lender has scrutinized the prospective buyer’s credit and verified the paper works to approve a destined loan amount. The approval process may take for a period ranging from sixty (60) to ninety (90) days.

Prospective buyers take advantage in a lot of ways by consulting a lender and getting a “pre-approval letter”. Initially, they have the chance to discuss loan options and budgeting with the lender. Next, the lender will check the credit of the buyer so that any unwanted problems may be discussed. The home buyer will also have an idea as regards the maximum amount they will be able to borrow, which will aid you in setting the amount range. Final approval is reckoned when the buyer already concluded with appraisal and the loan is applied to the said property. 

Prospective buyers should be careful in estimating their levels of comfort with a given house payment instead of speedily going for their maximum spending limit. 

As requirements for your pre-approval, you will be needing five (5) things such as proof of income and assets, good credit, employment verification, and other types of paperwork your lender may ask from you. Listed below are the detailed explanation of what you need to find out to come up with the information below and be ready for the pre-approval phase:

  1. Proof of income. Buyers must be able to come up with W-2 wage statements for a previous couple of years, recent pay stubs that justify income as well as your gross income. You also need to show your proof of any additional income such as bonus or alimony for the previous two (2) years as well as the tax returns.
  1. Proof of assets. The borrower needs to produce bank statements as well as investment account statements in order to justify that they have available funds destined for the down payments as well as closing costs together with the cash reserves. 

 

The down payment is recognized as a percentage of the total selling price, which basically differs for every type of loan. The majority of the loan comes with a requirement that the buyer buy private mortgage insurance (“PMI”) or simply pay a mortgage insurance premium. A buyer can also fund fees unless they are paying at least 20% of the total purchase price. To add to the down payment, one of the bases of pre-approval is on the buyer’s FICO credit score, debt-to-income ratio, or (“DTA”), and a lot more components, all depending on the type of loan. All but jumbo loans are conforming, meaning they adhere to government-sponsored enterprises such as Freddie Mac and Fannie Mae guidelines and parameters. Some homes are tailored for low-to-moderate-income house buyers of newbies. 

 

Meanwhile, Veterans Affairs (VA) loans, which need no down payment, are for United States Veterans service members, and not-remarried spouses. A purchaser who receives money from a relative or a friend to augment with the down payment may be required to submit a gift letter to justify that funds are not in the form of a loan.

 

  1. Good Credit Standing. The majority of the lenders require a FICO score of at least 620 or higher in order to permit a conventional loan, and some even require a good credit score from the Federal Housing Loan. Lenders basically reserve the lowest possible rate of interest for clients with an excellent credit score of 760 or higher. Guidelines on FHA allows approved borrowers with a score not lower than 580 to pay as little as 3.5% down. 

 

In the same manner, those with lower scores shall post a larger down payment. Lenders will sometimes work hand in hand with borrowers with low to moderate low credit scores. They will even suggest methods to enhance their credit standing.

 

We have made a chart that showcases your monthly principal as well as your interest payment on a thirty (30) year, fixed interest mortgage based on a range of FICO scores for three (3) conventional loan amounts. Please be reminded that on a $250,000.00 loan a buyer with a FICO score ranging from 620-639 would pay about $1288 per month, while a homeowner in the highest score ranging from 760-850 would pay only $1062 monthly. This has a significant difference of about $2712 annually.

 

FICO Score Range

 

620-639

 

640-659

 

660-679

 

680-699

 

700-759

 

760-850

 

Interest Rate

 

4.656%

 

4.100%

 

3.670%

 

3.456%

 

3.279%

 

3.057%

 

$350,000 loan

 

$1,804

 

$1,691

 

$1,605

 

$1,563

 

$1,529

 

$1,486

 

$250,000 loan

 

$1,288

 

$1,208

 

$1,146

 

$1,116

 

$1,092

 

$1,062

 

$150,000 loan

 

$773

 

$725

 

$688

 

$670

 

$655

 

$637

At present rates and over thirty (30) years of the $250,000 loan, a person with a FICO score ranging from 620-639 would pay about $213, 857 in interest while those ranging from 760-850 would pay about $132,216. A significant difference of about $81,000 annually.

And because interest rates vary every now and then, it is best suggested to use the FICO Loan savings calculator which is available over the internet, so you will not have any problem at all.

  1. Verification of Employment. It is given that lenders want to ensure they lend only to borrowers with steady employment. A lender will not only request for your payslips but also will have a chance to have a call on your employer to verify your employment records as well as your salary. A lender may also implement a background investigation in the event that the buyer recently changed jobs.

 

On the other hand, self-employed purchasers will be needing significant additional documentation in relation to their income and business. According to Fannie Mae, considerations that relate in approval of mortgage for self-employed prospective clients include the stability of the borrower’s profit, the nature, and location of the business of the borrower, the demand for the service or product offered but the business, the financial stability of the business and the capability of the business to continue distributing and generating ample amount of income to justify the borrower on making payments on the said mortgage. Basically, self-employed borrowers require producing at least two (2) of the most updated years’ tax returns with practicable schedules. 

  1. Other Paperwork. The lender will require a copy of your driver’s license and will surely be needing your social security number as well as your signature, to give freedom for the lender to pull a credit report. You have to be prepared during the pre-approval session and to supplement as fast as possible any added documentation needed by the lender to process your application. It is best recommended to be more cooperating so that the mortgage process will be as smooth as possible. 

CONCLUSION

Getting in touch with a lender before purchasing a property can actually save a lot of complexities later. Collate all your documentation before the pre-approval appointment and before you go select your ideal property. 

If you are looking to move to Dallas Texas and need an expert to help you find the right neighborhood, contact us today at ReByKaylee.

If you are looking to move to Dallas Texas and need an  expert to help you find the right neighborhood, contact us today at ReByKaylee.

Kaylee McMahon

Apartment investor/ TREC® Brokerage LLC Owner

c: 469-990-4627 (text or call)

www.rebykaylee.com

kaylee@rebykaylee.com

IG: Rebykaylee

By | 2020-09-09T13:31:57+00:00 September 2nd, 2020|Uncategorized|Comments Off on Five (5) Things You Need to Know to Get Pre-approved

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