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Preapproval 101: Why So Much Paperwork?

June 30, 2014
From Loan Officer John Hendley

From Loan Officer John Hendley

A mortgage preapproval gives your clients the assurance they can look for homes without worrying they might not have financing in order. It moves the mortgage underwriting process along more quickly and smoothly when all of the documentation is in place and ready to go, a key benefit in this competitive seller’s market.

Clients may be surprised and a bit overwhelmed by the paperwork required to complete a preapproval, but you can help by explaining what they need and also why it benefits them to gather these documents early on in the home buying or refinancing process.

Can the Borrower Afford a Home?

This question is the foundation of the entire mortgage underwriting process.

Lenders want to be sure the borrower can afford the home and mortgage they are applying for, so they want to see the complete financial picture, not just today, but over the past several years.

The following documents, for each applicant, capture assets and income details:

  • Tax returns – past two years, all pages and all schedules
  • W-2s – past two years from all employers
  • Pay stubs – usually from the past two pay periods or 30-days
  • Bank statements – several months’ worth to show seasoned assets
  • Other income sources such as investment income, rental income etc.
  • Landlord names/contact information if renting over the past two years

 

To obtain a mortgage, typically a lender will want to know the applicant has been employed for the past two years without substantial gaps in work.

 

Credit History Impacts Mortgage Offer

Your clients will be asked for their Social Security numbers and a credit report will be generated to learn their scores, a major factor in preapprovals and also in the type of mortgage loan offer they will receive. Typically the best rates and terms are offered to those with a score of 760 or greater. Because most people don’t know their credit score offhand, they may be surprised by the number or even learn about errors or problems for the first time. By obtaining a preapproval, these issues can be detected and dealt with before a borrower makes an offer on a home.

Already a homeowner?

Current homeowners will also share information about their current mortgage and property details, such as the current lender, account number and contact information as well as information on their homeowner’s insurance, property taxes, and more. Logistically this information is important because we will need to reach out to the current lender and insurance company to coordinate the transition to the new property and mortgage.

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