7 Things You Need To Get Pre-Approved For A Mortgage FAST
You’ve decided you want to buy a new property. You’re taking the leap but before you can find that dream home, you need to get pre-approved for a mortgage from your bank.
All too often I see people skip this first step and jump straight into house hunting on Zillow or Trulia. Or even worse, they call up a realtor to take them and show them houses. If you can’t get pre-approved for a mortgage, then this is all a waste of time. Without that pre-approval, you really don’t know what your budget is either.
Over a year ago I wrote an article titled: Before You Buy Your First Home Read This! That piece of content goes over the high-level aspects of buying a home. Yes, it states you need to get pre-approved but it doesn’t go into the details of what you actually need to complete that process. In this article, I go over each part that you need to have ready in order to get pre-approved for a mortgage.
7 Things You Need To Get Pre-Approved
1) Pay Stubs for the most recent 30 days
One of the first things a bank is going to want to see is that you are employed. Obviously, if you aren’t employed the chances of you paying your mortgage payment every month are slim to none. Because of this, a bank is going to want to see your pay stubs for at least the last 30 days.
Get them from your employer, talk to HR, or if they send them to you directly, go ahead and print them off.
2) W-2s for the past 3 years
The second thing you are going to need has to do with your employment again. Sure, they can tell you have been paid for the last month but what about the last 2 years? Have you held a stable job or are you on job number ten? This can all factor into whether you get approved for a mortgage or not.
Your employer should send you your W2’s every year (usually in January) and they are what you use to file your taxes. Get them ready. If you can’t find your W’2’s, contact HR at your employer, even if you don’t work there anymore. They can usually send a copy to your email fairly quickly.
3) The last 2-years of personal tax returns federal only, all pages
Your tax returns tell your whole financial story. Some even argue that paystubs and W-2’s are unnecessary because a tax return gives all of that information and more. Nevertheless, if you are trying to get pre-approved for a mortgage, then be sure to get copies of your tax return.
If you use an accountant, then they can easily supply this for you. If you use Quickbooks, Turbotax, or any other accounting software then you should be able to print off these documents.
4) Checking/Savings Statements last 2 months
Now that a bank knows you have a steady income in order to pay off the mortgage you are applying for, they now need to know what happens if you don’t pay. Yes, a bank is going to want to see your checking and savings account balances because if you default on your loan, they are going to come for your other assets as payment.
This is obviously the worst-case scenario but a bank is a business and they need to protect themselves.
5) 401k/IRA or other investment statements
In addition to your checking/savings statement, a bank also needs to see any other assets you may own. This includes 401ks, IRAs, other property, etc. Again, they just need to make sure you have enough to your name that can cover the loan they are giving you.
6) Current drivers license
It may seem unusual to have a driver’s license on this list but a bank needs to make sure you are who you say you are in order to pre-approve you for a mortgage. Other forms of identification may work such as a passport but have it ready.
Well, I have read horror stories of people having a mortgage or other loans taken out in their name but not by them. This is obviously fraud and hurts everyone involved except the criminal.
7) Your Credit Score
Before you walk into a bank to get pre-approved for a mortgage, make sure you have your credit score at an adequate level. My personal suggestion is it needs to be at least 650 or above. Anything under that and you are going to be paying a much higher interest rate which will cost you thousands of dollars in interest.
You are actually entitled to get your credit score and report for free once a year. But if you are like me then you want to know more often so you can use a service like Credit Karma. We’ll cover your credit score a little more in the next section.
How Important Is Your Credit Score?
If you want to learn everything you need to know about figuring out your credit score and what all goes into it then read my article: Save Yourself Thousands by Understanding Your Credit Score. To better illustrate how important your credit score is to get pre-approved for a mortgage, I want to go over an example.
Amanda and Jim both got approved to buy their dream starter homes for $100,000 and a mortgage for 30 years at a fixed rate. They are, however, extremely different people though. Amanda has been building her credit for over 5 years now and has had a car loan in that time that she fully paid off. She has never missed a payment and she credits this to scheduling payments online automatically; her score is 750.
Jim, however, got his first credit card 6 months ago, he missed the first payment by a couple of days but paid it off in full, he has no other credit history; his score is 610. In an example like this, Amanda would have an excellent credit score so she will get a much lower interest rate than Jim. Here is how it will look:
Since Jim didn’t take the right steps to build his credit, he received a 7% interest rate on his mortgage. In turn, this costs him almost $68,000 more and he bought the same exact house as Amanda!
This example may seem extreme but it is a very realistic if not low estimate of how a bad credit score could negatively affect you.
The Bottom Line
Getting pre-approved for a mortgage can be a long and tedious process. Getting all of these documents together, reading over the fine print, signing, and signing, it all adds up. But if you can get these 7 things together beforehand you will save yourself a significant amount of time and even more potential stress.
Sounds worth it to me, does it to you?
If so, then get these seven things prepared before you even start hunting for a property.
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