A simple step-by-step guide to buying a home in the Diablo Valley.
PART 2: Stamp of Approval
What does that mean? “Preapproval”. Well really, it’s a letter from a bank stating that you have the means to buy a house. Usually it will say that you’re approved up to such and such an amount for a loan.
This is important for a few reasons.
- One is that you have a very clear idea of how much you can afford. Until the bank checks your credit, salary, employment history and all that fun stuff, you’re really just guessing.
- Two, you really can’t make a serious offer without a pre-approval letter. Most sellers won’t even consider you unless you attach that letter to the offer.
- And three, many real estate agents won’t show you houses without pre-approval. They can’t be sure you’re serious without one.
So, how do you get pre-approved? Well if you’re working with a bank you like, give them a call, or talk to your real estate agent for recommendations.
Here’s what you’ll need:
- Recent pay stubs
- W-2s for the past two years
- Tax returns for the past two years
- Bank statements and a few other smaller details that you’re loan officer will help you with.
The bank will run a credit check, feed all your info into their computers and give you the maximum amount that you can afford.
A couple notes on this: these days most lenders will require at least a 620 credit score, but if you want to put less than 20% down, you may need closer to 720. Also important is two years of steady employment. Finally, the bank is going to want proof that you have the money for the down payment, closing costs and reserves, which on a conventional loan is usually 2 months of your PITI.
Here’s the tip: If your credit isn’t so hot and you can’t get the loan you want, check out seller financing. Maybe the seller is willing to carry back another loan for you so you can afford more. It’s more common than you might think.
