Unless you are paying cash for your new home, you will need to apply for a home loan. The first step in this process is getting pre-qualified. Getting pre-qualified tells you approximately how much home you can afford to buy based on your credit, income, and assets. We encourage home buyers to do this before they start looking at homes. There are many benefits to doing this ahead of time, below are just a few.
- You will be able to include a pre-qualification letter with your offers, as a result sellers will take your offer seriously and you will be in a better negotiating position
- You will know what your monthly payment will be and what price range your should be shopping in
- What closing costs you will need to pay for
- How much down payment, if any, that you will have to put down
- You will find out what kind of loan programs are available and what you qualify for
To pre qualify, you will need to speak to at least one mortgage loan officer, we recommend that you speak to more than one. Since getting a mortgage is a very important financial decision you need to make sure that you are working with someone you feel you can trust. The process takes about ten minutes and you should come out of the meeting prepared and comfortable with next step.
Once you have been pre-qualified, there is a tendency to go out immediately and look for a home. While this is not bad, it is a little premature. To be absolutely sure of knowing the sales price range that you can shop for, you should get pre-approved.
Getting pre-approved takes getting pre-qualified a little further. In this step you will actually give your loan officer your pay stubs, W-2’s, and asset statements like your bank statements or retirement account statements. If your loan officer has not pulled your credit they will during this step. You may even be asked to sign a full loan application and any additional paperwork necessary to get your file underwritten.
During this step, your loan officer will verify all of the information that you gave them in the beginning. They will then submit your personal financial and credit information to underwriting to determine if you qualify for the mortgage or not.
An underwriter will look at your loan and credit paperwork and give you a thumbs up, or a thumbs down about being approved. More often than not, no matter whether you get an approval or a denial you will get information or recommendations – we in the business call these either conditions or stipulations – for what is needed to get you a mortgage. Your loan officer should also tell you what you need to do to qualify.
Once you are pre-approved your loan officer can give you a pre-approval letter. This letter accompanies your purchase offer on the home you want to buy and is taken more seriously than the pre-qual because your information has been verified.