When you go through the pre-qualification process, you will figure out a few things; how much can you afford, what type of loan you will be using and how your credit looks.
The next step is going to be a full blown loan application. In this part of the process the lender will take the application, request supporting documentation and then begin the process of verifying all of that data.
The ultimate goal for the lender is to make sure the file complies with the guidelines of the entity that will ultimately purchase the loan: FNMA, FHLMC, or GNMA.
In order to complete the application, you will need the following:
✓ W2 from the past two years
✓ Pay stub for the past month
✓ Tax returns from the past two years
✓ Checking or savings bank statements for the past three months (this will likely have your down payment funds in them as well)
✓ Statements for all your other assets (stocks, bonds, retirement accounts) for the last two months
✓ Name and phone number of your landlord (if you are renting) or your current mortgage documents
✓ Divorce decree, if applicable
✓ For the self-employed: Your business tax returns for the past two years in addition to your year-to-date profit and loss statement and year-to-date balance sheet
✓ Credit Report and Credit Score
This pre-approval is the lender’s commitment that you qualify for a particular loan amount based on your income and credit information. If everything looks good and checks out, the lender will generate a pre-approval letter and a “Good Faith Estimate of Settlement Costs”. These are important documents to have when shopping for a home as they prove to both sellers and their agents that you have the means to buy their house. These documents are generally good for 60 to 90 days.
The approval letter is a letter from the lender stating that based on all of the information they have, you are qualified for a loan. This letter also gives the amount of the loan you are qualified for.
The good faith estimate, is a standard form that documents or discloses the fees associated with the loan you will be committing to. This is a required document that we will examine in detail in a future article.
Once we have these documents, we are ready to actually go out and find a property. At this point the lender waits for us to send them a contract for a particular property at which point they start to work on getting full loan commitment. This requires the contract, an appraisal and the buyer providing updated paycheck stubs and bank statements for the months prior to closing.