The first step in homebuying should have little to do with scouting potential homes to purchase and everything to do with making sure you are eligible for a home loan. Meeting with a lender for a pre-approval or loan commitment should be your top priority prior to your home search, so you can determine mortgage eligibility and home affordability.
In today's competitive housing market, it's important to have all of your financial ducks in a row. Here's how you can help speed up your loan approval.
Get a loan commitment before shopping.
A pre-approval shows your qualification to a home purchase subject to verification of certain items, such as income and assets. Though a pre-approval is a beneficial tool in the loan process, a loan commitment takes pre-approval a few steps further.
You can get approved even prior to finding a home to purchase with a loan commitment, giving you several advantages over a pre-approved homebuyer, including:
- A better purchase offer, because a loan commitment presents just as well as a cash offer.
- Peace of mind since your loan is already approved prior to making an offer.
- Expedition of the loan process. Your loan application has already been completed and turned in and your supporting documents have been verified prior to making a purchase offer.
- Quicker contract closings.
See the timeline of a borrower vs. a loan commitment here.
Have your supporting documents prepared.
It's no secret that getting a mortgage requires a significant amount of paperwork, so it's a good idea to get the items from your loan application checklist ready even before you meet with your lender.
The required verification documents include W-2 statements and federal tax returns from the last two years, your two most recent pay stubs and your last two month's bank statements. Your lender will also require copies of drivers’ licenses and social security numbers for all that will be listed on the mortgage.
Unique credit situations, such as: foreclosure or non-traditional credit, and other monthly debts, i.e. alimony or child support payments, will also require documentation. If you are receiving a gifted down payment from a relative, your lender will ask for verification documents, as well.
When your lender asks for further documentation, do your best to deliver it in a timely manner to keep your application moving forward in the loan process.
Be upfront with your lender from the start.
If you think there is something that will inhibit your approval, let your lender know. A large part of the mortgage approval process involves fact verification. It’s better for your mortgage banker to be aware of any potential issues from the beginning so that they may offer a solution.
Avoid making any major decisions regarding your credit or employment after application.
Certain actions after application can derail your closing date or even your mortgage approval altogether. Avoid making these common mistakes after applying for a mortgage, including:
- Quitting or changing jobs
- Switching from a salaried/hourly position to commission-based
- Opening a new credit card or closing an old one
- Making large purchases on a line of credit
If you are unsure about making a financial or employment decision during the application process, ask your mortgage banker to avoid any mishaps before closing day.
For more information about home buying and financing, in general, download our free Mortgage 101 Handbook, a great reference for first-time homebuyers.