How Important Is Getting Pre Approved For A Home Loan?

I seem to be getting this question a lot lately, and its not from Real Estate Agents, its from potential borrowers. Mostly due to the fact that they are worried about their credit score being affected negatively. While too many credit inquiries will definately do just that, we still need to take a look at it if you are really serious about buying a home.

These days there are more reasons than ever to get a full qualification before going out to look at a home.  First and foremost, it allows you to set a price range based on what you can afford each month. There is quite a difference between a $200k home and $150k home. Secondly it gives you a good idea up front of what the cost are, down payment, lender fees, title fees, inspections, etc.

In addition to this, the paperwork required has increased over the last year. Every investor seems to have a little different take on things, but one thing for sure is that all of them are getting pickier about paperwork. Take for example the following items:

Tax Returns - more than ever tax returns are needed to determine a borrowers true income. Write offs due to LLC's, Business Expenses, etc can really affect your ablility to borrow money, in addition to requiring more documentation such as partnership agreements, K-1's, P&L Statements, etc.  

Paystubs: First of all we use these to make sure you are working as many hours as you say you are,  secondly they will also reflect important items such as child support or 401k loans that are repayment.

Bank Statements: The obvious reason for bank statements is to verify funds needed for closing, but due to investor guidelines we also now have to track misc deposits that are made. This has become a huge hot button with investors. They want to know where all the money in your account comes from. Getting a withdrawal from your 401k? Great, we'll just need to have the most recent statement for that, proof of liquidation, and proof of deposit into your account!

I am definately not trying to make it seem scary or overcomplicated, but the fact is that there are a lot of things that can be made easier by taking a look at them up front. The more we know ahead of time about a situation the easier it is going forward to make sure that there are fewer complications.

In todays environement of cell phones, online applications, etc. it really is just too easy not to do!