A pre-approval letter by a lender is one of the most beneficial documents that will help you in your quest for buying a home.
When you meet with Better Rate Mortgage, you can discuss loan options and budgeting structure. We will be able to check your credit rating and inform you of any potential problems. Our unique “TBD Mortgage Approval Program” will give you confidence while looking for your dream home in St. Louis.
Obtaining a Pre-Approval Letter
As a home buyer, you should first of all be comfortable with the repayment structure of the loan you are applying for. You should never aim for the top of your spending limit from the very beginning. Many home sellers look for a pre-approval letter from the lender of the prospective buyer, since this document proves your ability to finance the purchase. The five documents that your lender requires prior to issuing a pre-approval letter are given below:
1. Proof of Income
Gone are the days when loans were sanctioned without any verification or documentation. Proof of income can be provided by your W-2 statement of the past two years which include your payment statements, additional income statements like income from alimony or bonuses, and your tax return statements of the past two years.
2. Proof of Assets
A lender will require your bank statements and investment statements to ascertain that you have the required capital to make the down payment and closing costs plus some funds in reserve. FHA loans require a down payment of just about 3.5 percent of the total cost, whereas down payment for a conventional loan is generally 10 – 20 percent. If you receive funds from a friend or a relative for helping you in making the down payment, you should also have a gift letter from the friend or relative stating that the said amount is a gift and not a loan.
3. Good Credit Score
The borrowers with the highest credit scores get loans at the lowest interest rates. A credit score of 740 or above gets you the lowest rate of interest on your home loan. Borrowers with a credit score of 580 and below are often required to pay a higher amount as down-payment. A credit score of 620 is preferred for an approval of an FHA loan.
4. Verification of Employment
Lenders are not always satisfied by the pay stubs provided by you. They may also call your employer to confirm your employment and what is your salary package. Borrowers with stable income are generally preferred by lenders as they are sure to recover their capital.
A copy of your drivers’ license and social security number along with your signatures will be required to pull up your credit report. You should be prepared to provide any additional paperwork that may be required for a smooth mortgage process. So keep these documents ready before you go shopping for a mortgage.