What’s needed for a pre-approval application?
When you want to make an offer on a home, a pre-approval letter backed by a lender like Guild gives sellers confidence that you’ll be able to follow through on the purchase.
Pre-approvals evaluate your current and even past financial standing so you can get solid direction to how much you can afford. To issue a pre-approval, lenders take your loan application, proof of income, asset documentation and credit report all under consideration.
Let’s break down the pre-approval application so you know what to expect going in.
Pre-qualification and pre-approval are not the same
First, it’s crucial to clarify the difference between a pre-qualification and pre-approval. Pre-qualifications give you a ballpark figure of what you can expect to afford, while pre-approvals are a lender’s conditional assurance to supply that amount after assessing your ability to repay it. While they’re often used interchangeably, they are not the same and have different implications when you’re shopping for a home.
| Pre-qualification | Pre-approval |
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Because pre-approvals are only valid for 60 days, you should get them when you’re seriously looking to buy soon. Any changes in financial status can nullify the pre-approval. In fact, your lender will do one last verification before you close on a home to make sure nothing has changed. A final loan approval shows the lender’s commitment once everything has been verified, and all conditions have been met to close the loan.
Step 1: Submit a loan application
Ideally at this step, you’ve had a conversation with a loan officer to make them aware of your needs and goals. You may have already become pre-qualified and are ready to seriously start shopping. Your loan officer will share a link to an online loan application, which includes:
- Personal information: your address, Social Security Number, date of birth, citizenship and marital status
- Information about any dependents and their ages
- Whether you’re applying individually or with another borrower
- Current and former employer contact information; if you’re self-employed, you’ll provide your monthly income and losses
- Financial information: your income, assets, debts—like credit cards or loans—and additional real estate to determine your debt-to-income (DTI) ratio
- A declaration for any bankruptcy or foreclosures you’ve dealt with
If you’re applying for a mortgage with someone else, they’ll also have to fill out their own form and follow the same steps to provide documentation.
In addition to the figures you put on this application, you’ll need to have employment and financial documents handy to complete the process.
Step 2: Get your proof of income ready
To show proof of your income, get copies of your recent pay stubs, W-2 forms and even your tax returns. Remember, the more information you’re able to provide at this step, the better your chances of getting pre-approved without delay. The numbers you provide on your loan application should match the figures on your pay stubs and government forms, so be careful in making sure everything looks the same across the board.
Keep in mind that any serious lender will reach out to your employer to confirm you’re actually working there.
Self-employed borrowers typically must qualify with two years of tax returns; however, Guild has loan programs where you can qualify based on your deposits into your bank account as an alternative method.
Step 3: Gather information about assets
Make sure you have asset documentation handy, whether that’s bank or investment statements, so your loan officer and their team can get a full picture of your finances.
Bank statements will include checking and savings accounts, as well as any information regarding your credit cards. Investment statements include stocks, bonds and retirement accounts like a 401k or IRA.
Again, these documents are essential in proving the information you provided on your loan application is accurate.
Step 4: Prepare to have your credit report reviewed
Your lender will review your credit to assess your creditworthiness and whether you’re likely to pay off your mortgage in the long run. As an overview, your credit score is composed of your:
- Payment history
- Credit utilization, or your outstanding debt
- Length of credit history
- Credit mix or variety
- New credit accounts
Ultimately, all these factors will result in a credit score that may qualify you for certain loans and interest rate reductions. If you have too much debt compared to your income, you may not qualify for certain mortgage types as this will lower your credit score. In fact, you may even be advised to consider alternate programs or encouraged to raise your score and reapply in the future.
Give yourself plenty of time before the home search to get pre-approved, so you can be alerted if there are mistakes or errors on your credit report that you’ll need to address.
Remember, getting pre-approved for a loan lets sellers know that you’re reputable, serious and prepared to put down an offer. As long as you provide a thorough pre-approval application, all your proof of income, accurate asset documentation and are confident about your credit report, you’ll be shopping for home before you know it. Connect with one of our loan officers today to get started on your home goals, no matter how near or far they are.
The above information is for educational purposes only. All information, loan programs & interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.