For most of us, figuring out how to get pre-approved for a home loan and then buying a home feels like you’re in a mystery movie. It starts off slow as you find and follow one clue to the next, figuring out what features you want, how many rooms you need, and what automatically knock a property off the list. Then, like any good mystery movie, you jump suddenly into the chase scene. You’re pulling together paperwork, you’re putting in a bid, you’re signing loan papers, and you’re hiring a moving company.
But that one key part – figuring out how to get pre-approved for a home loan – can turn the plot. It’s one thing to browse the market for available homes; being ready to buy is another. By learning how to get pre-approved for a home loan, you allow yourself to know how far along the track to home ownership you are.
Let’s first clarify an important thing: pre-approval does not mean that you are approved. Getting a pre-approval from a bank means the bank believes you have a strong chance of being approved for your loan based on the financial information gathered. Many sellers want to see that you have been pre-approved so they know they can take you seriously.
How to get pre-approved for a home loan: Be ready with this information
Lenders will look at many things before deciding on a pre-approval. They’ll want to know where you work and how much income you have. They will also be interested in your outstanding debts for confidence that you make enough to pay those debts along with a mortgage.
If you want to know how to get pre-approved for a home loan in the quickest way possible, then make sure you have the following information on hand when you go to the bank.
Proof of income
Proof of all the regular income you have will be valuable. This could include regular employment, alimony payments, bonuses, and more. What the bank is looking for is both a track record of earning and proof of continued earning.
A W-2 statement from the previous two years of tax returns will show your recent earnings history, and a year-to-date accumulation of earnings will let them know you’re maintaining your income.
Proof of assets
Proof of income is essential, but it only shows that you will be able to pay ongoing mortgage payments. You also need to provide evidence that you have enough money to make a down-payment on your desired home. Your current assets will tell the bank a lot about what kind of home you can reasonably think about buying.
Current bank statements or investment account statements will be sufficient to show the bank what you are ready to put towards your home purchase.
If you’re wondering how to get pre-approved for a home loan, but you haven’t been paying your other bills, you may want to take a step back. The bank is lending you an awful lot of money for a mortgage, and they need to make sure they are giving it to somebody they can trust to pay it back.
Your credit score will be the best indicator for them as to how trustworthy you are. An FHA loan will accept borrowers with a score as low as 580 as long as everything else is in order. Otherwise, if your credit score is not in good standing, your first job is improving your score.
Income is important, but lenders also want to know the source of this income is stable and reliable. In many cases, they will even want to reach out to your employer to verify your employment. A lender may also reach out to a past employer, especially if you have changed jobs recently.
These things combined do not create a be-all-end-all of your pre-approval process, but you’ll have a hard time figuring how to get pre-approved for a home loan without them. They are essential. And if the bank doesn’t like the information that they see here, your chances of pre-approval shrink.
The good news is, banks aren’t secretive about what they’re looking for. You should have a good idea of your chances for pre-approval before you walk in the doors. Still, a pre-approval does not show up on your credit score. This will only happen once you apply for the loan itself. So, if you’re seriously thinking about getting a house, applying for a pre-approval is an important step.
What is your experience with home loans?