Buying your first home can be stressful enough without worrying about whether your mortgage loan pre-approval is going to go through. That’s why it’s such a good idea to know the requirements before you narrow down your home search.
Here are the top items your mortgage broker or lender will need in order to pre-approve you for a loan.
W2 employees will need pay stubs, IRS 1040 forms and copies of their W2 form for the last two years.
For self-employed individuals and small business owners, the burden of proof is higher. Besides 1099 MISC forms, you may need to submit a letter from your accountant stating that your business is still active and a profit-and-loss sheet.
In addition to the regular taxable income you are bringing in, the lender will want to see proof of other assets, including savings, investment accounts and written documentation of a family member’s intent to gift you money.
These assets will let the lender know if you can afford a down payment, pay for the closing costs on the loan, and have enough cash reserves to afford the transition into homeownership.
Lenders want to know you have stable employment. Thus, they request a letter from your employer to verify your employment status and the salary you’re earning.
Self-employed individuals will need to submit at least two years of their complete 1040 forms instead of going through the traditional process.
Before they will pre-approve a loan, the lender makes a hard inquiry into your credit. You will need a credit score of at least 620 to qualify for a conventional mortgage loan or a Federal Housing Administration Loan with zero percent down. The government may approve borrowers for an FHA loan with a score between 580 and 620 if they can make a sizeable down payment.
In order to qualify for the lowest interest rates available — typically the ones you see advertised — you must have a credit score of at least 760. Sometimes, it is worthwhile to defer applying for pre-approval until you can raise your credit score. Why? A lower interest rate can save you tens of thousands of dollars over the life of the mortgage.
Finally, the lender will want to verify your identity by requesting copies of your driver’s license, social security number and signature.
