Are You Pre-Approved? (Don't Get Offended!)

When houses come on the market these days, they usually sell very fast. One reason for this is that there are not a lot of houses on the market to begin with. It’s what’s called a Seller’s Market. Therefore, when a client calls and is interested in buying a new home, one of the first things we ask them is:  Are you preapproved? Some people take offense to that question for some reason, but it is of utmost importance to be preapproved prior to even starting your search for your new home. Sellers don’t want unqualified buyers coming through their houses. Also, today’s sellers may have several offers on their house very quickly and will not be willing to wait for your offer while you're trying to get preapproved. Unless you have the cash in your bank account, you may miss out on your dream home.

There’s really nothing to be nervous about with the preapproval process and the only thing it will cost you is a little bit of time getting your documents in order. Here’s what a lender will need from you to get started:

·        Proof of income. The most common forms of documentation your lender will need are your

W-2’s and tax returns for the past 2 years. They may also ask for proof of other forms of income such as alimony, bonus checks or current pay stubs.

·        Proof of assets. This basically means you will provide a few month’s worth of bank statements or other statements such as investments. The lender needs proof that you have the money for things such as a down payment, closing costs and well as money in reserve for future expenses.

·        Driver’s license. To pull your credit report, your lender will ask for a copy of your driver’s license, your social security number and your signature granting them permission to run the report. There is no getting around this step if you are applying for a loan.

·        Good credit. Your credit score is very important in determining whether you even qualify for a loan and ultimately what interest rate you will pay if you do qualify. Most lenders like to see a score of 620 or above but to be qualified for the best interest rates available, scores over 740 are usually required. If your credit score is too low to get preapproved, most lenders will give you advice on how to improve it so that you can possibly get preapproved at a future date.

·       Employment verification. Besides providing your pay stubs and W-2’s a lender will also want to call your employer and make sure you still work there and verify your salary. If you have not been working there for very long, the lender will call your previous employer as well. If you are self-employed, the process is a little more complicated. You will have to provide various other documentation to get a loan. The lender needs to have proof that you have stable employment and a stable income.

The bottom line is – don’t be offended or nervous when a Realtor asks you if you’re preapproved. In this market it is essential to have all your ducks in a row before you hit the house hunting trail. You don’t want to waste your time or your Realtor’s time or worse, fall in love with a home and be unable to make an offer because you’re not approved. It may be too late.