Buyers tend to have a very short window of time once an offer is accepted. During this time, usually 40 to 50 days, the buyer is responsible to obtain finances and also make sure to get the unit inspected, appraised, and insured. To ensure that you don’t end up failing in obtaining the finance before the closing date, most agents recommend that you get pre-approved for a mortgage before you start bidding.
Pre-approval requires a credit check. If you’ve been pre-approved, the lender is ready to lend you required amount of money for your home purchase. It is not a final loan approval. To be able to finalize your loan you have to put in a bid and have an appraisal carried out on the property you intend to purchase.
The Documentation Required to Get Pre-Approved:
To get pre-approved for a loan, you’ll be needing the following paperwork.
Proof of income: To get a loan, you need a proof that you are employed. If you’re an employee, this would mean that you have to print out W-2 statements for the past two years. Pay stubs for the past twelve months and proof of any additional sources of incomes, including alimony would also be required. If you are a freelancer, lenders might ask for a lot more documentation. Be prepared to bring your 1099s for the past three to five years and bank statements to show how much money you have flowing into your account every month. You will also need to bring tax returns, whether you’re a salaried employee or freelancers.
Employment verification: Lenders may ask for employment verification letter and they can even ask for information regarding your current employer or employers to contact them directly.
Proof of assets: You might even be asked to prove that you have money coming in on a monthly basis. You would have to be completely transparent regarding your assets. Be prepared with your bank statements and investment account statements as an evidence to show you have resources for down payment. If your down payment is a gift from a family member or friend, you may also be asked to provide a letter proving this is the case. Lenders would also want proof that you haven’t taken out a loan that is not yet showing up in your credit history to acquire a down payment. If you don’t have a large down payment on hand and need a bit more help, you may be eligible for a HomeFirst Down Payment Assistance. This program offers loans up to $40,000 to New Yorkers who make 80% or less of the area median income.
Proof of service (for VA loans): Few loans options do not require a high down payment, this includes VA loans for U.S. veterans, service members, and not-remarried spouses. To ensure the VA loan program is not abused, additional paperwork is required. If you want a VA loan and you are no longer active, you will need a copy of your DD214. If you are still active, you will need a statement of service from your commanding officer. Also, a completed request for a Certificate of Eligibility (form 26-1880) from the Department of Veterans Affairs and a completed Certificate of Eligibility is required.
Credit Score: Lower levels of credit are difficult to obtain (nearly impossible to obtain in New York City). In the current market, your credit score should be at least 620, but if you want options, you should at least have a FICO score above 700.
Other documentation: To complete a credit check, your lender would also require a copy of your driver’s license and social security number and may ask for a copy of your passport.
Assembling paperwork might not be an easy job, it is an important step and the sooner you start, the better it is. According to research, buyers who go on the market pre-approved are far less likely see their deals fall through. Once pre-approved, the underwriting process generally only takes one to two weeks and if not it might take over a month for finance to be processed.