When you're in the market to purchase a home, one of the first steps you'll want to take is to obtain a pre-approval for a home loan. A pre-approval is a letter from a lender that states that you are qualified to borrow a certain amount of money to purchase a home. Having a pre-approval letter in hand can give you a competitive advantage when making an offer on a home, as it shows that you are a serious buyer who has already been vetted by a lender. So, what does a lender require in order to issue a pre-approval for a home loan? Let's take a closer look.


Credit Score and History

One of the first things a lender will look at when determining whether to issue a pre-approval is your credit score and history. Your credit score is a numerical representation of your creditworthiness, and it ranges from 300 to 850. The higher your score, the better your chances of being approved for a loan. Lenders will also look at your credit history to see how you have managed your debts in the past. They will look for things like missed payments, late payments, and delinquent accounts.


Income and Employment History

Lenders want to know that you have a stable source of income and that you will be able to make your monthly mortgage payments. They will ask for documentation of your income, such as pay stubs and tax returns, to verify that you have a steady income stream. They will also look at your employment history to see how long you have been with your current employer and whether you have a history of changing jobs frequently.


Debt-to-Income Ratio

Lenders will also look at your debt-to-income ratio (DTI), which is the amount of debt you have compared to your income. They will add up all of your monthly debt payments, including things like credit card payments, car payments, and student loan payments, and divide that by your monthly income. This will give them a percentage that represents your DTI. Lenders typically want to see a DTI of 43% or less.


Assets and Liabilities

Lenders will also want to see a list of your assets and liabilities. This includes things like your savings accounts, investment accounts, and any property you own. They will also look at your liabilities, such as credit card balances and outstanding loans.


Property Information

In order to issue a pre-approval, lenders will also need information about the property you are interested in purchasing. They will want to know the address, the purchase price, and the estimated value of the property. They will also want to know if there are any liens or judgments against the property.


Once a lender has reviewed all of this information, they will be able to issue a pre-approval letter that states the maximum amount of money they are willing to lend you to purchase a home. Keep in mind that a pre-approval is not a guarantee of a loan, but it can give you a good idea of how much you can afford to spend on a home.


In conclusion, obtaining a pre-approval for a home loan requires a thorough review of your financial history and current situation. By understanding what lenders are looking for, you can prepare the necessary documentation and increase your chances of getting approved for a loan. If you're ready to start the process of obtaining a pre-approval for a home loan, contact us to let us connect you with a reputable and world class lender in the Waco area.