To start the pre-approval process for a home loan, be prepared to supply pay stubs, bank account statements, tax returns and W-2 forms for the last two years, according to Credit.com. Other required documents showing additional income may include social security payments, alimony, or interest and dividend income.Continue Reading
A pre-approval letter states the amount a lender believes buyers are able to borrow based on their credit and income using supporting documentation. To get pre-approved, homebuyers should decrease their overall debt and improve their debt-to-income ratio. Although the maximum debt-to-income ratio is 43 percent, a ratio of 36 percent or less is preferable, according to Zillow. Prospective homebuyers should also work on improving their credit scores, since a score of 720 or higher generally receives the most favorable mortgage rates. Payment history, outstanding debt, the length of the credit history and recent credit checks all impact a credit score. Pre-approval letters can be generated online, but going to a bank with additional information on paper can also allow homebuyers to get pre-approved.
Buyers do not need to borrow the maximum for which they qualify, and they should consider their budget and comfort level with the monthly payment amount. Pre-approval means the prospective homebuyer completes the credit check and paperwork required for a mortgage and will have time to correct any errors before making an offer, notes Realtor.com.Learn more about Credit & Lending