What you Need to Know about TBD Loans and Approvals Before Venturing into Real Estate.
Anyone venturing into real estate understands that it is a profitable venture, but only if the investor has done their due diligence from the start of the investment process to the implementation. Most of the time, people shy away from getting their dream home because they do not have the financing they need for it. In other cases, people rush into investments without proper financial preparations and end up losing more money that they would have if they had taken their time and followed the correct process. Below is what you need to know about TBD approvals and other approvals that you need before qualifying for a loan or a mortgage.
The reason why buyers try to get a TBD approval before they start the home purchase process is that it gives them confidence from knowing they have an underwritten loan when buying an appraisal. Most sellers out there are looking for the buyer who has solid proof that they will buy the property before they write offers on a potential home. The TBD approval, therefore, helps you secure financing to the maximum extent that is possible before you have secured a property. The lender will assess your income, assets, credit and other determining factors and qualify them before you have even selected a property.
The process of getting a mortgage approval
A TBD approval is, therefore, part of the process of getting a mortgage approval for the property you are eyeing. However, it is important not to view the TBD approval as a standalone event and understand that it is part of a bigger process of getting the actual mortgage approved. These are the steps which will be followed to get you a complete mortgage approval:
- Proof of income: this is the first and the most important considerations that lenders make when determining whether you can afford a mortgage or not. To start the pre-qualification process, you need to be ready with W2 statements of the past two years, current pay stubs and other documents which act as proof of income. You should also be ready with your proof of tax returns.
- A good credit score: if you want to be approved for a mortgage, you need to make sure that you have a credit rating of 740 and above. This does not mean that having less that these points will automatically disqualify you. However, you may have to pay a little more interest. If your score is below 580, the mortgage lender might ask you to make a bigger down payment for the property.
- Proof of assets: most lenders will need you to present investment account statements and bank statements to prove that you have the money needed for the closing cost and the down payment of the mortgage. In addition to this, in case someone is offering the money to cover this cost, they will have to write a letter showing that this is not a loan.
- Proof of employment: lenders are looking out for the mortgage recipient who will be in a position to make their payments without default for the entire term of the mortgage. Therefore, even if you have already given your recent pay stubs, they will ask for documents which prove that you are in a permanent job. If you are self-employed, you will need supporting documents as proof of income.
The specific documents that you will need for TBD and other pre-approvals
If you are going to seek a TBD approval, it is important to know that the process requires a high level of compliance. The documents which you will need to secure approval before closing include:
- 2 months of bank statements
- Income tax returns documents
- Driver’s license or any other form of personal ID
- W-2 tax returns for the past two years
- Form 1065 for self-employed applicants
If you are planning to use alimony as an additional qualifying income, the lender may need you to present your divorce papers.
Available options for self-employed borrowers
People who are self-employed may have a harder time getting a mortgage pre-qualification than those in formal employment. If you have tried to get TBD and failed, there are two other options that you can explore. The first is a stated asset mortgage and the second is a no-documentation mortgage. However, before you venture into these options, talk to a financial expert and have them look into ways which you can prove that you deserve TBD approval.
These are essential things to know about TBD approvals and the process of getting a mortgage in general. It is important to consult with a competent mortgage lender to get the information that you need about loans and preapproval processes before you venture into real estate investment. With the right guidance, you will not have to worry about your mortgage deal falling out at the last minute.