Getting pre-approved is the lender’s process for determining how much a buyer can borrow. The lender will review income, work history, credit, assets, and more. Below are some of the common documents the lender will request:
- Tax Returns
- Work documents
- Bank Statements
- Retirement statements
- Rent Payment (If applicable)
- Mortgage Statements (If applicable)
- Stocks Accounts (If applicable)
- Real Estate income documents (If Applicable)
The lender’s goal is to ensure the person borrowing the money has the means of paying the loan. Because of that, the lender may request additional documentation. It is imperative to submit documentation in a timely manner.
A few other things the lender will consider are:
- Credit: According to Nerdwallet.com, the minimum credit score for an FHA First-Time Home Buyers loan is 500 with 10% down. If above 580, the down payment can be 3.5%. From my experience, many lenders require a score of 620 or higher. That’s because lenders have their own risk tolerance and can adjust as needed.
- Work History: Generally speaking, the lender is looking for 2 years of consistent work history. However, exceptions are often made.
- Down Payment: See above for FHA requirements. Conventional loan down payments can be 3% and more.
A pre-approval letter is generated once verified. We’ll use this letter when submitting offers.
Note: There is a difference between pre-approved and pre-qualified. The pre-approval is a more thorough process. In a seller’s market, it is much better to have a pre-approval letter. It shows that the buyer has been properly verified by the lender. Once pre-approved, we’ll start the home search.