Gaining a mortgage preapproval is a huge advantage when you buy a house, as it makes your offer attractive to sellers since you’re giving them a good assurance the deal won’t fall through. It also means you’re eligible for a specific loan amount, whereas “prequalified” merely says you have a chance to get the loan. But what requirements should you prepare for the preapproval process?
Reasons to Get Preapproved for a Mortgage Before You Buy a House
Any buyer’s agent would suggest you get preapproved for a mortgage loan before you search the real estate market because of the following benefits.
Clear View of What You can Spend
The mortgage preapproval process includes the lender thoroughly checking all of your financial records. Think of your credit scores, assets, and gross income. They gather this information to make the best estimated budget of what you can afford without financial stress. This estimation would be included in your pre-approval document.
Make a More Powerful Offer
Your offer letter serves as your hook to convince sellers to accept your deal and includes the amount you want to pay for the home, as well as stating you have been pre-approved. This assures the sellers that the deal is less likely to fall through compared to pre-qualified buyers and may even help you win a bidding war.
Smoother and Faster Transaction
When you’re pre-approved, you’ve saved time, effort and even cash for the buying process when your offer is accepted.
What to Prepare for Mortgage Preapproval
You see how helpful it is when you’re pre-approved before you search and buy a house. It gives a good estimation of the cost you can spend, makes your offer more attractive for sellers, and speeds up the buying transaction. Thing is, aiming for mortgage preapproval isn’t easy. You need to meet certain requirements to prove to the lender they can trust you. This starts with having all the needed documents for a smoother mortgage pre-approval process.
Requirements for Conventional Mortgage Loans
Conventional mortgages are regular home loans that you get from private lenders. This is the best option when you can’t qualify for special mortgages from the government. Here are the requirements you must prepare for this type of mortgage:
Private Mortgage Insurance
- Oftentimes, you need to pay this fee when you can’t afford a 20% down payment. You will need to continue paying this charge until you accumulate 20% equity.
Identification Document
- Official federal or state ID
- Passport
- Driver’s license
Income Records
- Previous two tax returns and two W-2s
- 30 days’ worth of pay stubs
- Proof of additional income
Financial Records
- Statements of your last two bank statement periods
- Investment account statements
- Retirement account statements
Property ownership
- A document that shows your ownership of a previous home property. This is only needed if you are not a first time home buyer.
Credit Report Clarifications
- A letter that explains issues in your credit report. Attach some documents as proofs as well.
Additional Requirements
- Contact details of your landlord for the last two years, if applicable.
- Gift letters from your family members who want to help with the do wn payment
Requirements for FHA Loan
This is a popular choice for homebuyers because of its enticing 3.5% downpayment. Here’s what you need to apply for an FHA loan:
Property Requirements
- This loan only covers properties that are FHA-approved. So, be sure to find a property that meets the requirements for an FHA loan.
Identification Document
- Official federal or state ID
- Passport
- Driver’s license
Income Records
- Previous two tax returns, and two W-2s or two 1099s
- 30 days’ worth of pay stubs
- Proof of additional income
Financial Records
- Statements of your last two bank statement periods
- Investment account statements
- Retirement account statements
Property ownership
- Closing disclosure of a previous property purchase,
- Or HUD-1 if the closing happens before October 3, 2015
Credit Report Clarifications
- A letter that explains issues in your credit report. Attach some documents as proofs as well.
Additional Requirements
- Contact details of your landlords for the last two years
- Gift letters from your family members who want to help with the down payment
Requirements for Getting Mortgage for an Investment Property Purchase
Buying a property that you want to open for rental demands quite different requirements. Here’s what you must remember if you want to buy a house for such investment purposes:
Identification Document
- Official federal or state ID
- Passport
- Driver’s license
Income Records
- Previous two tax returns, and two W-2s or two 1099s.
- 30 days’ worth of pay stubs
- Proof of additional income
Financial Records
- Statements of your last two bank statement periods
- Investment account statements
- Retirement account statements
Property ownership
- Settlement statement of your previous property
- Mortgage loan statements of other properties you own
- Insurance records of all properties that you own
- Present implemented leases of other rental properties you own
Credit Report Clarifications
- A letter that explains issues in your credit report. Attach some documents as proofs as well.
Additional Requirements
- Contact details of your landlords for the last two years
- Gift letters from your family members who want to help with the down payment
Requirements for Business Owners
There’s a slightly different list of mortgage application requirements when you own a business. Here’s what to know:
Identification Document
- Official federal or state ID
- Passport
- Driver’s license
Income Records
- Previous two tax returns, and two W-2s or two 1099s
- 30 days’ worth of pay stubs
- Proof of additional income
Financial Records
- Statements of your last two bank statement periods
- Statement of your business’ last two tax returns
- Investment account statements
- Retirement account statements
Property ownership
- Settlement statement of your previous property
Credit Report Clarifications
- A letter that explains issues in your credit report. Attach some documents as proofs as well.
Additional Requirements
- Contact details of your landlords for the last two years
- Gift letters from your family members who want to help with the down payment
- Business license
- Balance sheet (when needed)
- Profit and loss records within the last two months
Requirements for VA Mortgage Loan
This is the perfect mortgage for active or retired military personnel who want to buy a house. And it popularly offers a 0% downpayment rate.
Property Requirements
There are some standards for the properties that you can purchase using this loan. You must consider such standards before choosing a home.
Identification Document
- Official federal or state ID
- Passport
- Driver’s license
Income Records
- Previous two tax returns, and two W-2s or two 1099s
- 30 days’ worth of pay stubs
- Proof of additional income
Financial Records
- Statements of your last two bank statement periods
- Investment account statements
- Retirement account statements
Property ownership
- Settlement statement of a previous home
Credit Report Clarifications
- A letter that explains issues in your credit report. Attach some documents as proofs as well.
Eligibility Requirements from the Veteran Administration
- Form DD-214 or the certificate of discharge
- Statement of service from higher offices (for currently active personnel)
- Form 26-1817 or form 21-534 (for surviving spouses)
- form 1300, or report of casualty or death certificate (for surviving spouses)
-
Additional Requirements
- Contact details of your landlords for the last two years
- Gift letters from your family members who want to help with the down payment
Requirements for USDA Loans
This is another great mortgage loan from the US Department of Agriculture. And it’s perfect if you want to buy a house in rural areas, or those places with not more than 35,000 population count. Here’s what you need for the USDA mortgage:
Identification Document
- Official federal or state ID
- Passport
- Driver’s license
Income Records
- Previous two tax returns, and two W-2s or two 1099s
- 30 days’ worth of pay stubs
- Proof of additional income
Financial Records
- Statements of your last two bank statement periods
- Investment account statements
- Retirement account statements
Property ownership
- Settlement statement of a previous home
Credit Report Clarifications
- A letter that explains issues in your credit report. Attach some documents as proofs as well.
Special USDA Requirements
- Form 410-4 or the Uniform Residential Loan Application,
- Form 3550-4 or the Employment & Asset Certification,
- Form 4506-T or the Request for Transcript of Tax Return,
- Form 3550-1 or the Authorization to Release Information, (all adult household members must sign on this document)
- Life insurance policy details
- Child care expenses (includes documentation of children who are 12 years old and below)
- Present school transcripts of household members who are 18 years old and above and are full-time students
- Yearly medical expenses of household members who have disabilities and those who are 65 years old and above
- Thorough explanation of your last two years of employment history. Include gaps between employments when applies.
Additional Requirements
- Contact details of your landlords for the last two years
- Gift letters from your family members who want to help with the down payment
Requirements for Profession-Based Mortgages for Mortgage Preapproval
Some mortgages are intended for specific professions. Think of the Good Neighbor Next Door Loan for public service personnel, such as police, firefighters, and public school teachers. This loan kicks-in when they want to buy a house. Here are the common requirements for such mortgage type:
Identification Document
- Official federal or state ID
- Passport
- Driver’s license
Income Records
- Previous two tax returns, and two W-2s or two 1099s
- 30 days’ worth of pay stubs
- Proof of additional income
Financial Records
- Statements of your last two bank statement periods
- Investment account statements
- Retirement account statements
Property ownership
- Settlement statement of a previous home
Credit Report Clarifications
- A letter that explains issues in your credit report. Attach some documents as proofs as well.
Additional Requirements
- Contact details of your landlords for the last two years
- Gift letters from your family members who want to help with the down payment
Now You’re Ready to Get Your Mortgage Preapproval and Buy a House!
Yes, going for mortgage loan preapproval is a tedious task. And there are tons of documents that you need to submit. But if you’d prepare all of them beforehand, it would be easy, quick, and smooth for you to get preapproved. That’s when you can buy a house smoothly too.