Pre Approval Guide

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There are some general documentation requirements a buyer should have readily available when they are looking for a pre approval. They cover three basics of underwriting which are Income and Employment, Assets Available, and Credit Scores. Just to get ahead of this, the answer is yes you need a hard credit pull to receive a pre approval and no this shouldn’t have a sudden dramatic negative impact on your score.

Income and Employment

Lenders have a responsibility to determine if a borrower has the Ability to Repay a mortgage loan. In order to do this they must document a borrower's income and employment. They will require a 2 year history of the borrower's employment as well as current income information.

In order to establish this a borrower will need to provide the following documentation…

1. The most current 2 paystubs
2. The most recent 1 year W2’s and Tax Returns

Self employed borrowers will need to provide the most recent two year Personal and Business Tax Returns.

Assets

Lenders will need to verify that a borrower has access to enough funds to cover the down payment and closing costs for a mortgage. The total of these costs you will hear referred to as “Cash to Close”

In order to verify these funds the borrower must provide the most recent 2 months of bank statements. These statements should have all of the following information…

• clearly identify the financial institution
• clearly identify the borrower as the account holder
• include at least the last four digits of the account number
• include the time period covered by the statement
• include all deposits and withdrawal transactions (for depository accounts)
• include all purchase and sale transactions (for financial portfolio accounts)
• include the ending account balance

Credit

Credit scores and reports tend to be the scariest part of a pre approval for potential home buyers. There are a lot of misconceptions passed around that make people want to stop just before having a hard credit pull. 

The most common seems to be a fear that a hard pull will damage your credit. The misconception here is that one pull will drop your score. The truth is that multiple pulls from multiple lending sources will impact your score but one pull for a pre approval should not drop your score dramatically. In fact, you can have your credit pulled by multiple lenders within a 45 day window and credit bureaus will only record it as 1 hard pull to your file.