The Mortgage Process - Getting Pre-Approved
It first starts as a hope….a dream. Maybe born out of frustration from “wasting” money on rent or maybe
it’s a hope that one day you will have a home to call your very own. Or maybe you start to think that
you really could use more space or you loathe your commute to work. Regardless of how or why, at
some point, most people entertain buying a new home. Navigating the myriad of steps and rules can be
daunting—so let’s start at the beginning.
What is "pre-approval" or "pre-qualification"?
It’s likely that you’ve heard these terms. Either a pre-approval or a pre-qualification can serve as your credentials to look for a new home, depending on the discretion of a realtor. They may seem interchangeable but it’s important to understand their differences:
- A pre-approval is a firm offer to lend based upon supplied documentation and underwriting guidelines. You’re likely to find, especially in a competitive market (or a “seller’s” market) that a realtor will not take you to look at a home without pre-approval paperwork.
- A pre-qualification is a light version of a pre-approval. The pre-qualification is a conversation with a loan officer that is made up of generalities. There may or may not be a credit report generated for you, income is not verified and you will not have underwriting approval.
How do I choose a lender?
The market is full of options for individuals, couples and families seeking to finance a new home. Here are some of the considerations you should make before deciding on a financial institution:
- Location: A local lender might have a firmer grasp of your real estate market and a longer history of serving the area. For example, Bethpage clients appreciate the ease and accessibility of working with our professionals.
- Finances: Rates and fees are worth considering as you determine which lender to use. Buying a home is an enormous investment, so minimizing the ancillary costs and interest will make it easier to absorb the expenses.
- Do Your Research: A reputable lender will not only give you a specific interest rate but will also give you an estimate of closing costs so that you are aware of the total cost to acquire your new home and what the monthly payment could be.
How do I prepare for a pre-approval?
At your pre-approval appointment, lenders will ask for documentation so that they can confirm your creditworthiness and your credit will be reviewed. This includes income verification, a review of assets and credit scoring.
Remember that mortgage loans are based upon layers of risk, and those layers of risk can affect your ability to qualify for a mortgage. You don’t want to go to contract and find out you are not qualified to purchase that dream home.
How can I demonstrate my income?
To show your income to your loan officer you will be asked to show proof of your income. You will need to bring with you:
- Your four most recent weeks of pay stubs, to give your loan officer insight into your annual income and current employment situation.
- Your W2s for the past two years, to give your lender your employment history and illustrate your income stream over the recent past.
- If you have multiple jobs in your history or if you have had a large increase or decrease in your income, be prepared to write a letter of explanation. Telling your story can be important: Lenders won’t know what you don’t tell them, and this can affect your ability to qualify for your loan.
What about Assets?
Your assets are verified to ensure that you have sufficient down payment funds as well as reserve monies.
- Most lenders will request your bank statements for the past two months. If there are any unusual or large deposits, you will be asked to provide a letter of explanation describing them.
- Whether you will be using these funds for the acquisition of the home or showing reserve assets, showing proof of your retirement funds can strengthen your loan application.
- If you are fortunate enough to have family members who are giving you gift funds to help purchase your home, they will need to write a letter stating the amount you will receive, what their relationship is to you and when they intend to give you the funds. Their ability to give may need to be verified and the deposit will need to be documented.
What do I need to know about credit?
Your credit score cannot only affect your ability to secure the loan but also the type of loan for which you qualify. The three major credit agencies will be consulted to get a glimpse of your credit profile.
Remember that a credit report is a snapshot of that moment in time — credit is fluid and always changing. In the meantime, get to work on improving your credit score and building new credit by making payments on time, resolving outstanding debts and opening new lines of credit that will demonstrate your reliability.
Your relationship with your lender is the cornerstone of the pre-approval process. Because Bethpage is a credit union, not a bank, we have your best interest at heart. Let us help you start your exciting home-buying journey by getting pre-approved for a low-rate mortgage from Bethpage!