Before you start searching for a home in West Columbia, SC, it is a good idea to find out just how much you can afford to spend. Though you may have a particular number in mind, the bank may not qualify you for as much as you would like. Plus, buyers who are pre-approved are taken more seriously by sellers and are more likely to have an offer accepted because they already have financing options in place. Take our advice and find out what you will need to have in order to achieve pre-approval. Financing is the toughest part of buying a home but, with pre-approval, your home search can actually be a fun process.
Pre-Qualification vs. Pre-Approval
Amy and Brad immediately fell in love with the two-story with a brick patio and big backyard. They quickly made an offer and began looking for lenders. Unfortunately, they soon discovered that they couldn’t qualify for the home. They tried to find something else in their price range, but other houses paled in comparison. If only they had shopped for loans before looking at houses…
One surefire way to reduce stress during the process of home buying is to seek pre-approval, actually applying for a loan before finding a house. The loan agent assembles a credit package that includes a loan application, credit report, income and asset information, and supporting documentation. These documents are then submitted to prospective lenders who underwrite the file, issuing credit approval or denial.
Buyers who are pre-approved are taken more seriously than their pre-qualified counterparts. Pre-qualification is not a loan commitment from a lending institution; it is only a loan agent’s opinion that you will be able to obtain financing. Verifications are not usually made so formal approval is not issued. These days, virtually anyone can achieve pre-qual status.
Pre-approval, on the other hand, signifies that the lender has taken the application through a rigorous procedure. So buyers with pre-approval status can basically write their own ticket.
Benefits of pre-approval:
- If you make an offer on a home and then apply for a loan, you are at the lender’s mercy. He sets the interest rate and points, aware that you do not have time to shop around.
- Understanding the breadth of your financial reach will save the time spent looking at houses you can’t afford.
- Shopping for a loan allows you to settle on a house payment that fits your lifestyle. If you rely on your lender to tell you what you can afford, you may end up with a high mortgage payment. Most people can qualify for more than they would feel comfortable paying.
- Having a pre-approval letter from a lender gives you an edge in a situation where multiple offers have been made on a house.
- Pre-approved buyers can generally close escrow more quickly. Once you submit your credit package, most of the legwork has already been done.
Remember, neither pre-approval nor pre-qualification are absolute loan commitments. Lenders must still assess property appraisals, verify information, and, in many cases, verify credit before funding the loan.
If you are planning to apply for pre-approval, take some time and gather the right paperwork to help expedite the process. Below is a list of what you will need.
- Previous three months’ bank statements on all accounts.
- Statements for two months on all stocks, mutual funds, bonds, etc.
- Copy of latest 401K statement or other retirement assets
- Explanations for any large deposits and source of those funds
- Copy of HUD1 Settlement Statement on recent sales of homes
- Copy of Estimated HUD1 Settlement Statement if a previous home is for sale, but not yet closed
- Gift letter (for funds from family members); donor’s bank statement; copy of gift check; copy of deposit receipt
- Landlord’s name, address, and phone number (if you rent - for verification of rental)
- Explanations for late payments; credit inquiries in the last 90 days; charge-offs; collections; judgments; liens
- Copy of bankruptcy papers filed within the last seven years
- Copy of Social Security Card
- Copy of Driver’s license
- Last two years’ W2 forms
- Most recent pay stubs covering a 30 day period
- Federal tax returns (1040’s) for the last two years, if:
- you are self-employed;
- earn regular income from capital gains;
- earn sizable interest income;
- earn more than 25% of your income from commissions or bonuses;
- own rental property;
- or you take non-reimbursed business expenses.
- Year-to-Date Profit and Loss Statement (for self employed)
- Corporate or Partnership tax returns (if you own more than 25% of a business)
- Pension Award letter
- Social Security Award letters
- Purchase agreement copy (if you’ve already made an offer)
- Receipt for child support payments
- Copy of Divorce Settlement
- Copies of twelve months canceled checks to document actual receipt of funds
- Copy of your most recent monthly mortgage bill
The following cannot hurt to have ready, but are not as necessary as they once were:
- Copy of Note on existing loan
- Copy of HUD1 Settlement Statement on existing loan
- Copy of DD214
West Columbia SC Real Estate - EXIT Real Estate Consultants in West Columbia SC
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