What do you need to give a lender to get pre-approved to buy a house?
You will need you driver’s license, Social Security number, and any other pertinent proof of identity (such as a marriage license, if your name has recently changed). In general, you should be prepared to act swiftly any time your lender requests documentation of any kind. Providing documentation in a timely manner will ensure the process keeps moving forward; on the other hand, dragging your feet will help make sure your loan is sluggish on the way to the finish line, too.
Proof of Income:
This can take the form of W-2s, pay stubs, bank records, and sometimes written proof of income from your employer. If you receive alimony, child support, significant investment dividends or any other type of income. You will want to have proof of these resources as well. If your income is verifiable and can count toward the purchase of a home, be prepared to provide proof. It is standard for a lender to ask for two years of proof of income to get you pre-approved.
Proof of Assets:
Conventional financing will require a 10-20% down payment, while FHA financing requires a down payment as low as 3.5% of the purchase price. You’ll need to provide proof of enough funds to cover the down payment, closing costs and cash reserves equal to two months of expenses, typically. If you do not have adequate cash on hand to cover these amounts, you may be able to supplement using additional reserves, such as IRAs or other investment accounts. Whether these funds will suffice as reserves depends on their level of liquidity, and you will be required to provide proof, for example, that you can access your 401k without extreme circumstances such as job loss or a death in the family. If you do not have adequate funds on hand, it doesn’t mean you won’t be able to buy a house; it may mean, however, that you have to postpone your purchase until you have adequate funds available to cover these amounts to the bank’s satisfaction.
Verification of Employment:
Your lender will require two months of pay stubs and will often need to verify your employment. Relocating and changing jobs within the same field are normal events in a person’s life. Radically changing your career field in the recent past doesn’t mean you won’t qualify for a loan. However, the lender may require additional documentation. The underwriter may additionally want a letter of explanation outlining the reason(s) behind your career changes. Lapses in employment can be a red flag for lenders, but if you have a reasonable explanation and have continued to meet your financial obligations, this does not necessary mean your home purchase will be derailed. The lender will likely require more information which could cause your closing to be pushed back. Plan ahead and see what the lender needs.
You will need to have reasonable credit to get pre-approved to buy a house. The better your credit, the better your financing terms will be. Lenders reserve the best interest rates for borrowers with a median credit score of 740 or above. FHA guidelines require a higher down payment for buyers with a credit score below 580. If your median score is below 620, you may need to pay a higher interest or buy down your interest rate. Understand that lenders want your business, but they aren’t miracle workers. Motivated lenders will have suggestions on how you can improve your credit score and improve the likelihood of qualifying for a home loan in the near future.
If you are ready to buy a house, you probably want to move in as soon as possible – that’s human nature! Don’t despair if the lender’s response is, “Not right now.” We’ve had “not right now” clients who closed on a home just a few months down the road after following a lender’s advice to straighten out their credit and improve financial ratios, such as debt to income. Achieving mortgage-worthy credit can happen faster than you realize when you follow the advice of an experienced lending professional.
Now that you know how you get pre-approved to buy a house, you’re ready for the next step. If you’re just getting started and need some help, we’re here to answer any questions you have or to help get you connected to one of the many lenders we work with.