Getting pre-approved allows you and your lender to better understand how much you can actually borrow. It involves a more in-depth review of your financial history, and can give you an advantage in the negotiation process when you are among others interested in the same home. While not required, it is usually recommended that buyers are pre-approved prior to searching or engaging an agent, so that, from the beginning, your search is more streamlined and directed to homes that fit your unique financial needs.
Chicago National Finance can help you get pre-approved. In a confidential review of your credit score, debt-to-income ratio and income, we can determine what kind of down payment might be required for your ideal home. As a rule of thumb, a minimum 650 FICO score is required; with a score of 760 or more, you are likely to qualify for the best rates. You will also need a down payment of 5%-20% of the home purchase price.
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Borrowers also need to be prepared with proof of any additional income such as alimony or bonuses.
You will need to present bank statements and investment account statements to prove that you have funds for the down payment and closing costs on the residence, as well as cash reserves. If you receive money from a friend or relative to assist with the down payment, you will need gift letters which certify that these are not loans and have no required or obligatory repayment. These letters will often need to be notarized.
It's important to have a paper trail of where your down payment and closing cost funds are coming from. You can't use any undocumented money for your down payment or money you've deposited from a credit card withdrawal or gambling winnings. If you have any odd deposits, you'll need to document them with deposit slips and an explanation to make sure they aren't unauthorized gifts.
For example, if you are getting married and are relying on the cash wedding presents you will receive for a down payment, lenders want that money deposited into your bank account as soon as possible and may even want to see a copy of your wedding invitation to ensure that the date of the deposit aligns with the date of the nuptials.
Simply put, any sudden change in your finances – for better or worse, but especially better – will need to be explained, and if you cannot document it, it likely won't be counted.
Most lenders today reserve the lowest interest rates for customers with a credit score of 740 or above. Below that, borrowers may have to pay a little more in interest or pay additional discount points to lower the rate. Most lenders require a credit score of 620 or above in order to approve an FHA loan, especially to qualify for a 3.5% down payment; borrowers with a credit score below 580 are required to make a larger down payment of 10% Lenders will often work with borrowers with a low or moderately low credit score and suggest ways they can improve.
Your lender will want to see your pay stubs and will likely call your employer to verify that you are still employed and to check on your salary. If you have recently changed jobs, a lender may want to contact your previous employer. Lenders today want to make sure they are loaning only to borrowers with a stable work history. Self-employed borrowers will need to provide significant additional paperwork concerning their business and income.
Your lender will need to copy your driver's license or state ID card and will need your Social Security number and your signature allowing the lender to pull a credit report. Be prepared at the pre-approval session and later to provide (as quickly as possible) any additional paperwork requested by the lender. The more cooperative you are, the smoother the mortgage process will be.
"If you have any unusual income or circumstances, you'll need to provide other documents," says Peter Boyle, a senior loan originator at Summit Mortgage Corporation in Plymouth, Minnesota. "For instance, if you're divorced, I need to see a decree. If you filed bankruptcy, I need a full copy of the discharge documents. If you have rental income, I need a copy of the lease."
Typically, the pre-approval process takes two to four weeks. Some lenders are beginning to experiment with online applications which can be much faster.
With pre-approval, you will receive a conditional commitment in writing for an exact loan amount (and often an interest rate as well), allowing you to look for a home at or below that price level. Getting pre-approved for a mortgage also enables you to move quickly when you want to make an offer: It won't be contingent on obtaining financing, which can save you valuable time.
Buying a home is complicated and mortgage even more so. When you work with a mortgage broker you are working with someone that has to take continuing education classes every year and prove their knowledge by passing multiple exams. You might be surprised to learn that the employee of a large national bank does not. CNF ownership has over 35 years mortgage experience and survived The Great Recession. We don’t just want to handle the tough mortgage decisions we want to educate you to make the best decision for the next purchase and everyone after that. We want you to understand the different types of loans and when to use them. You will be able to understand how much home you can afford and the value of your pre-approval letter. We explain the underwriting process to give the best understanding of how your loan will progress.
Part of a mortgage brokers’ continuing education is understanding credit agencies and their scoring system. We will send you a copy of your credit and make sure you understand every aspect and what it means for your potential loan. Plus we can guide you to decisions that will improve your score. Often we talk to client that we cannot help because of a damaged credit report. It is not unusual that in one month we improve the score enough to qualify or at least get a better rate.
– Many programs exist to aid first time buyers. You should speak to your mortgage broker well before you start looking for homes and higher a realtor. We can help you put things in order before you apply for a mortgage. Lenders like to see minimum income, assets and credit scores before they will approve you for a loan. We can help you put a plan together in advance that will help the process go smoothly.