Looking to buy a home? It’s easy to get caught up in the frenzy of shopping around for a home and forget to take care of the basics. The home buying process should ideally start in a lender’s office. This will give you a clear picture of what exactly you can afford. It will also be an opportunity to discuss loan options and budgeting with your lender. You’ll also get the most important document in your quest for a home – the pre-approval letter. Here’s are some tips for getting a mortgage pre-approved.
1. Proof of Income
No-documentation or no-verification loans no longer exist. You will need to prepare your W-2 statements for the last two years, recent payslips, and proof of additional income. You’ll also need to present your tax returns for the last two years.
2. Proof of Assets
You will need a bank statement as well as an investment account statement to show that you have the money required for the down payments, cash reserves, and closing costs. You will need a down payment of 10-20% for conventional loans and 3.5% for FHA loans. If a friend offers to give you money for the down payment, they will have to write a gift letter showing that the money is not a loan.
3. Good Credit
If you have a good credit score, then you’re bound to get the lowest interest from your lender. You need a minimum credit score of 740 to get the best rates. If you have a score below that, you will be required to pay a bit more interest. Even FHA loans have tightened the noose and now you need to have a credit score of 580 and above to benefit from the 3.5% down payment. Even then, many lenders need a credit score of 620 and above to approve the FHA loan. If you have a poor credit score, you can always talk to your lender about your options and they will advise on the best way forward.
4. Employment Verification
To prove that you’re employed, your lender will ask for your payslip and call your employer to find out if you are actually employed and to verify your income. If you’ve changed jobs recently, the lender will go a step further and call your former employer. They will need to establish that you are actually in stable employment before you get pre-approved for a home loan. If you are self-employed, you will need to provide more documentation and evidence of your income and business.
Your lender will ask for your Social Security number, driver’s license, and your signature to enable them to pull a credit report. During the pre-approval session, you should be ready to provide any additional paperwork or documentation required by the lender. You should try your best to be cooperative. This will allow the mortgage process to move smoothly and get your pre-approval faster.
Once you’ve gotten the pre-approval, its now time to start shopping for a home. You should enlist the help of the Toronto condo team to make your search less stressful.