The long road to home ownership often begins with the mortgage prequalification process. This involves a lender determining how much home you can afford to buy. You don't have to provide a lender with evidence of your assets during the prequalification. However, this doesn't necessarily mean that your assets won't have a bearing on your ability to get a mortgage.
Mortgage prequalifications are based on verbally provided numbers rather than proven facts. You tell your lender how much you make, how much you keep in your bank and what kind of home you want to buy. You can also tell the lender your credit score if you happen to know it although scores change on a regular basis. The lender uses this information to work out the maximum mortgage payment you can afford based on your income and debt levels.
Many lenders ask about cash assets such as savings and checking accounts during the prequalification process. Lenders need to know how much cash you have on hand to cover the downpayment and the closing costs. If you have poor credit or minimal income, some lenders allow you to qualify for a mortgage on the basis of your assets. As with details of your income, you only provide the lender with verbal information at this stage so the lender is assuming that the numbers provided are accurate. Lenders are only interested in assets that have a bearing on your ability to get a loan, such as cash held in accounts or stocks and securities that you could quickly sell to raise money.
If your lender prequalifies you for a loan, you can move to the next step in the mortgage process, which is the preapproval. At this point, the lender checks your credit report to ensure you have a high enough score to get a loan. The lender also verifies all of the information you provided during the prequalification. This means you have to provide the lender with pay stubs and evidence of your assets, such as bank or 401(k) statements.
If you don't have any cash assets, it doesn't mean you can't get a mortgage. If you buy a home with an FHA-insured loan, your relatives can give you money for the down payment. In this case, you tell the lender you plan to use gifted funds during the prequalification and provide evidence of these funds including a gift letter and bank statement during the preapproval stage. You may also negotiate for the seller to cover some of your closing costs. Between gift funds and seller concessions, you may not need any of your own cash assets in order to get the loan.
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