While casually shopping for your new home may be a lot of fun, serious home buyers should start the process with a broker like Seattle Mortgage Brokers, not an open house with a realtor. Buyers can benefit in several ways by consulting with a broker, and obtaining a “Pre-Approval Letter”. This is a letter from a broker showing proof that they can obtain financing. First, you would have an opportunity to discuss your mortgage options, and budgeting. Second, the broker will pull your credit and alert you to any problems.
A third point is, you can figure out the maximum you can borrow, and therefore have an idea of your price range. However, you should be careful and estimate your own comfort level with a mortgage payment, rather than immediately aiming for the top of your spending ability. Lastly, home sellers will expect you to have a pre-approval letter and are more willing to negotiate with you if you do.
Pre-approval Vs. Pre-qualification
A mortgage pre-qualification can be very helpful as an estimate of how much you can afford for a monthly loan payment. A pre-approval is much more valuable because to a seller and realtor, this indicates a broker has gone through and checked your credit, and verified you would be approved for a specific loan amount. Your letter is usually good for a particular time period, i.e. 90 days. Final loan approval occurs when you have an appraisal done and the loan is applied to a particular property.
1. Proof of Income
Thanks to the Mortgage Crisis of 2008, “No verification” or “no documentation” loans are a thing of the past. You as a borrower need to be prepared with W-2 statements from the past two years, recent pay stubs that show income as well as year-to-date income, proof of any additional income such as alimony or bonuses and your two most recent years of tax returns. This will also greatly speed up closing time when it comes to finally funding your home loan.
2. Proof of Assets
You will need to show bank statements and investment account statements to prove that you have funds for the down payment and closing costs. Sometimes you may also need cash reserves to show that you won’t be shooting yourself in the proverbial financial foot. As an example, an FHA loan requires a down payment of as low as 3.5% of the cost of the home, while conventional home loans can require 10% to 20%, depending on the particular loan program. If you receive money from a relative to assist with the down payment, you will need a gift letter to show that this is not a loan you will have to repay, on top of your home loan.
3. Good Credit
Most lending programs today reserve the lowest interest rates for customers with a credit score of 740 or above. Below that, borrowers may have to pay a little more in interest or pay additional discount points to lower the rate. FHA loan guidelines have tightened recently, so that borrowers with a credit score below 580 are required to make a larger down payment. Most lenders require a credit score of 620 or above in order to approve an FHA loan. Seattle Mortgage Brokers will often work with borrowers with a low or moderately low credit score and suggest ways they can improve their score.
4. Employment Verification
The lender or broker will not only want to see your pay stubs, but is likely to call your employer to verify that you are still employed and to check on your salary. If you have recently changed jobs, a lender may want to contact your previous employer. It is important to have at least 2 years of employment history backed up by W2’s. Lenders today want to make sure they are loaning to borrowers with stable employment history. Self-employed borrowers will need to provide additional paperwork concerning their business and income.
Your broker will need to copy your driver’s license and will need your Social Security number and your signature allowing the lender to pull a credit report. Be prepared at the pre-approval session and later to provide (as quickly as possible) any additional paperwork requested by the lender. The more cooperative you are, the smoother the mortgage process will be.
The Bottom Line
Consulting Seattle Mortgage Brokers before you start the home buying process can save a lot of headaches and heartache later, so gather your paperwork or print some recent statements off your online bank accounts before your pre-approval appointment and before you begin house hunting. Call Now 206-992-5635, we are here to help you!
*This article does not represent legal interpretation or advice. This is not a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet LTV requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines, and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over life of loan. Reduction in payments may reflect longer loan term. Terms of the loan may be subject to payment of points and fees by the applicant.