6 Legal Documents you Need to Get Pre-Approved for Home Loans

When you have decided to buy a house and are planning to take a mortgage loan, your first step should be to get pre-approved.

Getting pre-approved is the most effective way to get quick approval for home loans. It signifies that the buyer possesses the required financial means for home buying. Thus, it can significantly speed up the mortgage process by increasing your favorability to home sellers.

It helps narrow down your budget as you can get an accurate estimate of the following factors:

• The maximum mortgage amount you can get
• Estimated monthly payments
• Specified interest rate and loan term

Moreover, you can secure a home loan at much better mortgage rates if you get pre-approved. For example, even if the mortgage rates increase after you have already obtained the approval, you will still get the same interest rate as specified.

Recently, mortgage rates have started increasing sharply with an upward trend. Thus, it's best to apply for a mortgage pre-approval beforehand. For this, you should consult with an experienced mortgage broker and prepare all the documents you will need.

Documents required to get pre-approved for a home loan

For mortgage pre-approval, lenders usually require various financial and legal documents for assessment. Here we have compiled a list of the essential documents you should prepare:

1. Personal Identification

When applying for any type of loan, your personal identification proof and other details are usually required. Thus, applicants must provide their state-issued valid photo ID, passport, Social Security card, driver’s license, or other acceptable identification documents.

Your other personal details, such as your address, phone number, email ID, etc., would also be required. This information helps lenders determine your eligibility and reliability as a borrower.

2. Credit History

Details of the applicant's credit history are usually required to determine their financial condition. It is among the top factors that may affect your approval chances. Thus, applicants need to have a good credit score to get pre-approved easily.

If your credit score is low, it is crucial to plan ahead and devise a strategy to improve your credit rating. In that case, you can seek assistance from a mortgage broker before it's time to apply for a mortgage pre-approval.

3. Debt-to-income ratio

During the mortgage pre-approval process, lenders would also be interested to know whether you have any existing outstanding loans. Thus, your debt-to-income (DTI) ratio will be analyzed. It will include the history of all loans that you may have paid back previously or are still ongoing.

It is ideal to have a low debt-to-income (DTI) ratio for quick approval. For example, a DTI ratio below 45% is generally considered favorable when applying for a mortgage.

4. Proof of income

The mortgage amount and monthly payments will be determined based on your ability to pay. Thus, reliable income proof is generally a key consideration for lenders. For this, you can provide the following documents:

• Pay stubs for the last 30 days
• Letter of employment (including position and length of employment)
• Proof of alternate income sources (if any)
• Profit & Loss statement (if self-employed)

Based on your financial soundness you will receive an estimate of the mortgage amount you can qualify for.

5. Bank Statements

Along with your income proof, lenders may require further supporting financial documents for verification. For example, applicants may also need to submit:

• Recent bank statements
• Tax returns of at least two years
• W-2s and/or 1099s
• Any additional documents as required

Your bank statements are also required by lenders to analyze any warning signs, such as unstable income, insufficient funds, bounced checks (if any), money from unknown sources, or any suspicious payments.

6. Proof of Cash Reserves and Assets

Lenders usually require verification of your existing cash reserves and other assets. These documents are required to ensure you have sufficient funds for the down payment, closing costs, and monthly payments.

You can provide proof of a checking account, CDs, retirement funds, investment accounts, savings, or proof of a gift deed that you can use.

Some lenders may also require a few additional documents. The faster you provide all the required documents, the sooner you can expect an estimate. However, getting pre-approved may not guarantee that you will get approval if you lose your job or hurt your credit before the closing. Thus, it is crucial to have a consistent financial condition.

A  mortgage pre-approval is usually valid for a specific period generally between 3-4 months. Therefore, you need to make preparations accordingly. Consulting with an experienced mortgage company can be your best bet for getting the best mortgage deal.

When to Apply for a Mortgage Pre-Approval?

The process of getting pre-approved may usually take a week or more, depending on how fast you submit all the required documents. Thus, you can apply for pre-approval whenever you have decided to look for a house to buy.

Ideally, it is recommended to get pre-approved before you start house hunting as it would help you plan a realistic budget. Moreover, you can estimate your eligibility and take the required actions to improve your financial condition to buy your dream house. Thus, you may want to get assistance from experienced mortgage brokers.

If you want to get a conventional loan at the ideal mortgage rates, consult with our experienced mortgage brokers today!