Top 4 Things Buyers Need to Know About Pre-Qualifying for a Mortgage

"Are you pre-qualified?"
"Do you have a pre-approval letter?"

These are two questions your real estate agent will ask you when you begin working with them to find your new home. First time homebuyers may be surprised at these questions if they are in the "we're just looking" phase. Pre-qualification and pre-approval for your home loan are essential first steps in the home buying process. It seems elementary, but it is important to consider.

The main reason you need to get pre-qualified before you begin your home search is to know what you can afford. What's the point of wasting your time, your agent's time, and the seller who must clean up and get their home ready for you to view if the asking price is beyond your means? Getting pre-qualified helps narrow it down for you; you know what you can comfortably afford, and then you can get to work scoping out dream homes or property.

Here are the top 4 things you need to know when you are ready to get pre-qualified:

1) Research your lender. Take the time to ask for referrals, check for online reviews, and interview potential lenders to find one that feels like a good fit. Your lender will walk you through the entire lending process, so you want someone with whom you are comfortable. The lending and home buying process is stressful no matter how smoothly the transaction goes. It's a big deal buying a home! So, find someone who you think will help out you at ease and keep you well informed throughout the process. You are not obligated to stay with the lender who pre-qualifies you, but you would have to begin al over again if you change your mind later. Good real estate agents always have a list of preferred lenders with whom they have built a relationship.

2) Pre-qualification is not the same as pre-approval or final approval of a loan. Pre-qualification involves providing information to your lender, so that they can advise you on the maximum loan amount you can afford IF you are approved. Generally, pre-qualification is a quick process, which can be done over the phone or online. Normally, there is no fee for pre-qualification. Because it is a quick procedure, pre-qualification is not a sure thing, just a guide to help establish some perimeters as you begin your hunt.

Pre-approval is a more extensive process, which requires that you provide documentation to your lender, fill out a mortgage application, and pass a credit check. You will receive conditional commitment in writing of an exact loan amount, which allows you to more confidently look for homes at or below that price. You will have a much better idea of the interest rate you will be charged, and in some instances, you might be able to lock in the current rate. A pre-approval letter is a valuable tool that some sellers request to accompany an offer. In a competitive market, pre-approval lets the seller know you are serious, and could prevent you from losing your dream home to someone who already has their financing arranged.

3) Be prepared with your numbers and documents. Once you have decided on your lender, you will need to have your information in order. You will need last month's pay stub, or profit and loss if you are self-employed. They will likely ask for your tax returns from the last two years. Go ahead and get your credit report from all three bureaus: Experian, TransUnion, and Equifax. Be sure you have a handle on all of your debts, obligations, and your general financial situation before you begin, or you will waste time and have to make another appointment with your lender.

4) Be honest and don't fudge; it will come back to haunt you. The point of pre-qualification is to give you an idea of what you can realistically sustain in a mortgage over the next 15 to 30 years. There's no fun in moving into your new home, only to find that the mortgage, along with all the fees you may or may not have factored into the process, stretches you beyond your means. So, be honest about your income, debts, and obligations so that your lender can give you the best possible numbers to work with as you search for your home. Keep your bills paid on time; lenders want to see a good credit history and stable employment over the last 2 years.

Lastly, remember that a pre-qulaification does not mean that you have a loan. Pre-approval gets you one strong step closer to final loan approval. In recent years, the lending process is rigorous and can be a tedious process. Be prepared for pitfalls and set-backs. Keep a folder either in hand or on your computer with all documents you send to your lender. Sometimes, they will ask for the same document more than once. Be patient; there's a LOT involved in the lending process today.

I would love to help you find the right lender to get started with pre-qualification, and then move forward with finding the right property for you. Contact me at 843-424-0995 or today! You're WORTH it!