Often the first thing I tell potential clients is to get a pre-approval letter if they don't already have one. This is important for two reasons. First, because the pre-approval letter tells both the buyer and the agent what they can afford rather
then making an assumption based on their income and holdings. Visiting homes that are priced over what you are qualified for is a sure road to disappointment and frustration.
Second, it shows that you are really serious about buying. Buyers who drag their feet on getting a pre-approval tend to be not as committed to the process. Should you find the perfect home, without a pre-approval letter to submit with an offer, chances are that another buyer who is properly prepared will make an offer that will be taken seriously by the seller. A pre-approval letter often makes the difference between an acceptance and disappointment.
A pre-approval letter is different then a pre-qualification. If you
call up a lender and say "here is about what I make and I don't have
any debt," then the lender will give you a pre-qualification. This is
basically worthless. You can't get a loan based on suspect details.
However, when the lender asks you for pay stubs, information about
properties and stocks and other assets and you provide those documents
then a pre-approval letter can be issued. This is worth something. We
can walk into an offer for a home and can provide the seller with some
proof you can buy the house. Now nothing is set in stone until the
lender's underwriter reviews your financial history and portfolio. So
don't buy that car or other big purchase item while under contract, it
will come back to bite you and you could loose that house.
There are three ways to have a lender write a pre-approval letter
(there are more but these will suffice):
1. Written with the full amount you can borrow
This might be used to show how strong you are if the offer price is
considerably lower then your purchasing threshold. This can backfire if
you are not a strong buyer or the house price is right at your limit.
2. Written with the amount you are offering for the home
With this pre-approval, the seller now knows you are approved at least up to that amount, possibly more. This allows you to keep your cards close to your chest, especially if you are under bidding and want the seller to think you might not be able to go any higher.
3. Written with just the address of the home.
This allows you not to disclose how much you can truly afford, keeping the seller guessing. This can be useful in bidding wars where you want to set the amount you
are willing to pay and not be stuck in the assumption that you are a weak buyer who can't go up any more or a strong one who can go much higher. However this doesn't mean you will win only that you can afford the home and "may" be able to go higher.
As your agent, I have built relationships with a variety of lenders, or can work with your lender if you should have a preference. A pre-approval letter is just one more piece of the puzzle when buying or selling a home.
What you'll need to begin the Pre-Approval Process:
Pay stubs for the most recent 30 days
Information on any other income you wish to have considered, such as part-time income, rental income, etc.
W-2's for the past two years
Name, address and phone number of landlord for the past 24 months
Previous two months bank statements on accounts (checking, savings, CD's, brokerage, mutual funds, etc.)
Most recent statements on asset bearing accounts if generated yearly or quarterly (401K, IRA, etc.)
Copy of social security card and driver's license
If you are self employed, receive commission income, or own investment properties
Previous two years signed tax returns with all schedules attached
Previous two years corporate/partnership tax returns
Year-to-date profit and loss statement (self employed only)
Current leases on investment properties with rental income
If applying for a VA Loan
VA Certificate of Eligibility
For in-service veterans, Statement of Service and recent Leave and Earnings Statement
Name and address of child care provider (if applicable)
If you have been divorced
Complete signed copy of all divorce decrees
Proof of receipt of child support payments for the last 12 months
If you have declared bankruptcy in the last 7 years
Copy of Petition/Decree, Schedule of Creditors, and copy of Discharge
If you are relocating with company benefits
Copy of company's relocation policy
Letter from employer stating effective date of transfer and new income
Copy of entire relocation buyout offer (if applicable)
Additional items if you are refinancing:
Copy of your survey
Hud-1 Settlement Statement from purchase of the home
Most recent mortgage statement on your primary loan (and 2nd lien if applicable)