Pre-Qualification

You’ve decided now’s the time to buy a home

You’ve learned about the mortgage process and you know your next step is to get pre-qualified. Just how do you do that, exactly?

Step 1. Find a Mortgage Loan Officer

Find a mortgage loan officer that you are interested in working with for your eventual mortgage. Pre-qualification takes you partially into the mortgage process, so it is helpful to meet and work with an officer early on.

Step 2: Provide Proof of Income

The first thing the mortgage loan officer will ask for is your proof of income. Here’s a list of what that should include:

  • Last 2 years of W-2 statements
  • Last 2 years of tax returns if self-employed
  • Pay stubs for the last 30 days
  • Documentation for any other income: bonuses, alimony, etc.
Step 3: Provide Proof of Assets

Income is important, but the mortgage loan officer also needs to see proof that you have cash set aside for some upfront costs. This usually includes funds for:

  • A down payment
  • Closing costs
  • Cash reserves

You should know how much you’re planning to put towards a down payment at this point. Requirements for different loan types can vary, from as little as 1% and up to 20%.

To prove you have the assets to cover all these upfront costs, bring along documentation, such as your:

  • Bank statements for the last 2 months (all pages!)
  • Investment portfolio statements

Have a friend or relative who’s offered to chip in on the down payment? Lucky you! Your loan officer needs proof of this, too. Prepare a letter showing the funds are a gift and not a loan you’ll have to pay back.

Step 4: Get Your Credit Checked

Next on the list: the credit check. How does this part work? The better your credit score, the better your loan options will be.

In general, a credit score of 740 or better usually gets you the best interest rates on offer. The low end of acceptable credit scores is 620 for most FHA loans.

A good loan officer won’t just tell you your score and move on, however. You should get some helpful feedback about how to improve your credit profile or correct errors that came up.

Have your driver’s license and your social security number on hand so your loan officer can process your credit check.

Step 5: Find Out Your Results

This is where you find out if you have been approved and for how large of a loan you can receive. You will be issued a pre-approval letter and some next steps. If the pre-approval process didn’t work out like you had hoped, don’t be worried — your mortgage loan officer can make suggestions to put you on the path for getting pre-approved.

Do I Need a Pre-Qualification?

We hear this all the time. Do I really need to pre-qualify before I go home shopping? Technically, no. but you may find that you are viewed as a serious home buyer when you have a pre-qualification letter.

Buying a home today is much different than it was just 10-years ago, before the housing bubble burst. It was much easier to get approved for a loan. Some lenders were comfortable taking on high-risk borrowers. Since then, the application process got a little harder for everyone.

Just like you, sellers and listing agents are adjusting to this new environment. With stricter rules for borrowers, sellers can’t jump into a sale with the first person to make an offer. They are sizing up buyers, looking for one who can complete a sale and get financing.

When a buyer makes an offer but is not approved for a mortgage, everyone loses. Since not all buyers will be approved, there is a huge incentive for sellers to choose an offer from a pre-qualified buyer. This tells a seller that their financials have been checked.

Winning Over Sellers

If sellers and agents want to work with buyers that have pre-qualification, that means you’ve got to get pre-qualified. After all, you want to be prepared and successful on your home search.

You don’t want to miss out on that dream home by showing up without your pre-qualification letter. If you’re serious about a particular home, make it known and that you have financing.

Before you start looking for a home, prequalification letter in hand, here are a couple of tips:

read your letter carefully

Read Your Letter Carefully

The exact dollar amount you’re qualified for is your absolute max budget. Start looking for homes priced equal or less that that amount.

homes move fast

Homes Move Fast

If homes in your area sell quickly or get multiple offers, look for slightly cheaper homes that have room to haggle or raise your offer if needed.

shop soon

Shop Soon

Start shopping for your home right after you get your pre-qualification. Brokers offer terms for 90-days, which is only a few months to find the right home, make an offer, and initiate a sale. This will go faster than you think!

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