If we can have a guaranteed, ‘no surprises’ path to buying a home…well, let’s not daydream. While we do have guides to buying a home, this article included, there’s always going to be at least one twist, one turn. That’s why at Worth Real Estate Company our goal is not only to put out fires for you, but help you minimize fires from the start. 

One strategy? Ensure your family has all the necessary paperwork prepped and ready to go for your lender and the offer process. And while in this guide to buying a home we’ll focus on the documentation needed before the offer, reach out for more information on post-offer processes. 

“I encourage all of my buyer prospects to talk to their loan officer first,” says David Worth. “It is much better to know your price point ahead of time. It’s very disappointing for everyone involved if one goes through all the motions (burning gas, looking at homes, writing up an offer, getting all excited, etc.) to find out that the prospective buyer did not qualify for a particular purchase price.”

In reality, your agent, mortgage lender and title company will provide specific instructions on the exact paperwork that is needed for your home purchase. But as a framework for preparation, here are four facets of documents that will get you on track for a new property.

Proof of Income and Assets

As an initial guide, the goal during phase 1 to buying a home is pre-approval for a loan. With that pre-approval letter in hand, your offer in a pool of other buyers will be a competitive advantage.

When applying for pre-approval with a lender, you’ll need to provide multiple documents that prove income, employment and assets. Every lender is different, but in our experience and as we provide a guide to buying a home to our clients we’d recommend to start collecting:

• Pay stubs or other proof of employment (W-2s, 1099s, etc.): Obvious right? This demonstrates to the lender that you not only have a plan to pay your mortgage, but a basis to show how much you can realistically afford as a mortgage payment. 
• Proof of employment: Any further information that can relay to the lender that a buyer has steady income is key. Document a list of your last two years of employment. Provide company names, HR representatives, even management’s contact information. 
• Bank statements: This includes statements dating back a minimum of 30 to 90 days for all accounts (checking, savings, etc.). 
• Business banking and related records: This applies to self-employed buyers or contractors and can include year-to-date profit and loss statements. 
• Assets: Investment, trust, retirement statements and proof of ownership for vehicles or real estate holdings can all be provided to the lender. And if a third-party gift is contributing to a portion of your down payment, a gift letter will most likely be required. 
• Tax returns: The standard is generally two years of tax returns to support income history. Long-term proof of steady numbers (or growth) tells the right story: you can pay your mortgage. 

Background on Debts

A significant weight on your qualification for a loan can include your debt-to-income ratio. Any outstanding debts, from student loans to credit cards and car payments, should be provided in statements. Some buyers choose to go above and beyond (a key in our guide to buying a home) by compiling creditor names, addresses, account numbers and outstanding balances.

Credit Report

Just like a rental application, a lender would like to look into additional information that would contribute to how you can repay the loan. A credit report breaks down payment history, collections, debts, all vital financial background. 

The Goal: Pre-Approval Letter

With all this documentation in hand, lenders can properly verify not only a feasible homebuying budget but your ability to make on-time payments. Some agents, in fact, even wait until you’ve received this letter before even beginning the showings process. It allows you to understand all the costs involved to set up the process for success, avoiding getting your hopes up or shooting for a number that’s too low.

An additional note is the difference between an online pre-qualification application and a pre-approval letter. While they’re used interchangeably sometimes, as we guide clients to buying a home we emphasize that a ‘pre-qual’ is just based on an estimated overview of your finances. A pre-approval requires all of the documentation listed above, holding more weight with sellers and agents. 

While buying a home can be daunting, when preparing documentation well in advance and following a guide to buying a home your family can step into the process equipped for a smooth path forward. What happens after pre-approval? How does the transaction work after your agent submits an offer? This is really when the baton gets passed and your agent takes over. Give us a call to see how.