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- When you are preapproved for a mortgage, a lender tells you how much you can borrow and what interest rate you’ll pay.
- It’s generally seen as a good idea to apply for preapproval, because you can compare lenders and show buyers you’re a serious candidate.
- To apply for preapproval, you’ll need basic documents like identification, proof of residence, and proof of employment.
- You’ll also need to gather proof of income and assets, and the lender will do a hard pull on your credit score.
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You don’t necessarily have to apply for mortgage preapproval to buy a home — but it’s widely considered to be a good idea.
By applying for preapproval with multiple lenders, you can compare and contrast terms to find the best deal. A preapproval letter also shows the seller you’re serious about buying a home, which can give you a leg up in the buying process.
What is a mortgage preapproval?
Mortgage preapproval is an early step in the homebuying process. You’ll apply for preapproval when you’re shopping for homes and expect to buy within two or three months. When a lender preapproves you for a mortgage, it’s saying it would like to work with you.
In a preapproval, the lender tells you which types of loans you may be eligible to take out, how much you may be approved to borrow, and what your rate could be. Once you’ve been preapproved, your rate is typically locked in for 60 or 90 days.
You’ll need to have certain documentation on hand when you either speak with a lender face-to-face or apply online.
9 things you need to be preapproved for a mortgage
Have an official form of identification on hand, like a driver’s license or passport.
You’ll also need to provide your Social Security number. Simply telling the lender your number isn’t enough. You should either show your Social Security card or a document that includes your number in full, like a tax form.
2. Proof of residence
Bring an official document that shows your present address. This can’t just be an envelope addressed to you from a friend or family member. It needs to be a legal document, such as a utility bill or bank statement.
3. Employment information
Bring pay stubs from your current job. The lender might call your boss to verify employment and salary, so have contact information on hand.
If you’re self-employed, then you have to show more employment documentation. Bring profit and loss statements, tax returns, and 1099s for the last two years.
4. Proof of income
Along with your current employment and income level, a lender wants to look at information from the past couple years. Gather W-2 forms and tax returns from the past two years.
5. Proof of assets
You’ll need documentation for all your investment accounts, including an IRA, brokerage account, or employer-sponsored retirement account like a 401(k).
6. Debt documentation
If you already own a home, then the lender will also need to see what you currently pay for your mortgage and any related insurance costs.
7. Credit score
The lender will do a hard inquiry on your credit score, meaning it will show up on your credit report and temporarily affect your credit score.
A lender will use your Social Security number to check your credit score. But you should already have a good idea of what it is by checking it for free with a company like Credit Karma or CreditSesame before you apply for preapproval. Knowing your score will help you understand your chances of being preapproved and what interest rate you might pay.
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The higher your credit score, the lower rate you can qualify for. You can get a great rate with a score over 740, and an exceptional rate with a score of 800 or more.
8. Rent information
If you currently rent, you’ll need to bring proof that you’ve made payments. The lender will probably want to contact your landlord, or even your last couple landlords. Have their contact information handy.
9. Down payment information
The lender will ask you about your down payment amount, but you may or may not have to provide specifics at the preapproval stage.
If someone is giving you a gift toward your down payment, then you may want to have a gift letter in hand. The person giving you the money must write a gift letter saying what their relationship is to you, how much they’re giving you, and the date they’re handing over the funds. The letter should specify that the giver doesn’t expect you to repay them.
You’ll need a gift letter at some point in the homebuying process, so it might help to have it ready here, even if your lender doesn’t require it this early.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
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