While it can be fun to idly shop around for a home, any serious home buyer begins by getting preapproved for a mortgage in the Bay Area. This is an important first step to shopping for a home because you get the chance to discuss loan options with your lender and find out how much you are approved to borrow. The lender will also check your credit and let you know if there are any problems you should be aware of and fix.
A preapproval is much different than a prequalification. When you get prequalified, the lender will rely on information you provide to estimate how much you qualify to borrow. When you get preapproved in the Bay Area, the lender verifies your information and documentation to figure out exactly how much they are willing to lend you.
You will need the same documents to get preapproved as you will to get a mortgage. These documents are outlined below.
Keep in mind a preapproval from a bank is not necessarily a loan commitment, but it will speed up loan approval and underwriting later.
Without Preapproval, Your Offer Will Not Be Accepted
A large number of buyers begin shopping for homes in the Bay Area — and even making offers — without getting preapproved. This can be a big mistake when you find a home you love and want to make an offer. Many agents and sellers will reject offers immediately from buyers who are not preapproved from a bank. This isn’t surprising, considering how often these transactions can proceed for some time before it becomes apparent that the buyer cannot actually obtain a mortgage and the deal falls through.
What You Need to Get Preapproved
Expect to provide the following when you contact a lender for preapproval for a mortgage in the Bay Area.
Proof of Income
“No documentation” loans are long gone, and today buyers must be ready with two years’ worth of W-2 statements, recent pay stubs that show income and a year-to-date amount and proof of additional income, such as alimony. You will also need your two most recent tax returns to further verify your income.
Proof of Assets
You will also need to give the lender statements for your bank account and investment account to prove you have the money for closing costs and your down payment, along with healthy cash reserves. With an FHA loan, you will need to make a down payment of at least 3.5% of the purchase price of the home, and conventional loans may require 10-20% down. If you get an FHA loan in the Bay Area, you can use money received as a gift for your down payment, but you must provide a letter proving the money was a gift, not a loan.
Good Credit History
Most lenders will give the lowest mortgage rates to borrowers with a credit score of at least 740. The farther down your credit score goes, the more you will pay in interest or additional discount points to lower your rate. FHA guidelines have become more stringent so you will need a credit score of at least 620 to get approved. Lenders often work with borrowers who have moderately low credit by suggesting methods for improving the score ahead of shopping for a home in the Bay Area.
Along with pay stubs, your lender will also most likely contact your employer to verify you still have the job and double-check your salary. If you have changed jobs recently, this may be a problem, as lenders want to see stable job history. It may not be a huge problem if you have changed jobs in the same industry. If you are self-employed, expect to provide a great deal of additional paperwork to document your business and income.
Your lender will request a copy of your driver’s license, your Social Security number and your signature to obtain your credit report.
You may also need to provide additional paperwork and documents as the pre-approval and loan process progresses. The faster you respond, the sooner you can begin planning your move in the Bay Area.