Getting Preapproved: Your FIRST Step, Not the Second
Getting Preapproved: Your FIRST Step, Not The Second.
You've probably heard the saying: "Don't put the cart before the horse."
Well, that holds true when it comes to buying a home. For some reason, it's common that a prospective homebuyer makes their first call to a real estate agent before getting preapproved.
Today's blog post covers why it's important to get preapproved by an experienced lender BEFORE you start the home buying process.
Preapproval Isn't Optional Anymore
A good real estate agent will want to know you are qualified to purchase a home before driving you around and showing houses. The worst thing you can do is go and fall in love with a home that is out of your price range, or comfort level. A good preapproval will take a look at your income, credit, and assets to determine what you qualify for. But, as I always tell my prospective clients, typically what you can qualify for is beyond what you are comfortable with. Knowing your budget up front, and determining your comfort level will mean you are only looking at homes that meet that criteria. This avoids a lot of disappointment and wasted time.
What Lenders Look For
Income: Your job history and stability is very important. For example, if you have variable income (Commission, Bonus, etc) then you typically need a two year history of earning this income before you are able to use it to qualify. The same goes for someone who is self employed. A two-year history and the net income reported on your tax returns is critical.
For typical salaried W2 earners, it's a bit more straightforward. You'll just be supplying two years of W-2 forms, and your last two paystubs.
Credit: Your tri-merge credit report will show your credit history reported to all three credit bureaus. This will be used to determine your creditworthiness and ability to repay your debts. It will also be used to calculate your debt-to-income ratio (DTI). Your DTI will determine the maximum amount your monthly payment can be. Any debts you have on your credit report, will be added to your new monthly housing payment. For most loan programs, the maximum your DTI can be is 50% (which, again, is typically beyond someone's comfort level).
Assets/Down Payment: The funds for your down payment will need to be "seasoned" in your bank account. You'll be providing two months of bank statements to show the funds in there. If you suddenly got a large deposit a week ago, then those funds may not be eligible for use. In some cases they can, but typically a lender is looking for those funds to be in the account over the two months provided.
Employment History: Typically lenders want to see you with a two year history of work in the same field. There are circumstances where that's not the case, but most of the time it is. Large gaps of employment are sometimes a deal breaker for certain loan programs. It also matters if you go from a salary job to commission. Ideally you'll have two straight years of earning income in a similar fashion. Pro Tip - College education counts for job history, so if you are a recent graduate and then land a job in your field, you can qualify without working two years in that new job.
Typical Documentation You'll Need to Gather
W-2's for two years, paystubs covering 30 days, and sometimes Tax Returns for two years (for some income types)
2 months of bank statements - all pages.
Valid photo ID
Preapproval Isn't A Commitment.
Getting preapproved doesn't lock you into buying, but if you are seriously considering buying a home, it's the first place to start. Working with a mortgage broker like myself, who has helped thousands of homeowners, means you not only get access to my experience, but also the network of over 180 lenders that I work with. This allows me to shop around for you to find the very best terms for your mortgage. My goal is to educate you and provide you with all the knowledge you need to make a decision for yourself.
If you'd like to see what you can qualify for, click here to start the process today.
Want to schedule a call to talk about your situation? Click here to set up a time with me.
Peter Seroter NMLS 997692
This blog was written solely by me- not AI.
