Getting prequalified for a home loan is an essential step in the home-buying process. For many reasons, potential buyers often wait to get their pre-approval done before looking at homes. We do not recommend this for several reasons, but the biggest is not knowing your budget and what you can afford. If you are serious about getting your home search started this year, here are five things you need to do to get prequalified:
In order to get an idea of your financial situation, your lender will want to see some of your financial documents, such as bank statements, pay stubs, tax returns, and credit reports. Typically, lenders like to see two months of bank statements and check stubs, the last two years of your tax returns, and a credit report which they often produce.
Choosing a lender is a process in itself, as many financial institutions, such as banks, credit unions, mortgage lenders, and brokers, are able to provide a home loan to home buyers. Typically, we recommend shopping around for rates and using a LOCAL lender that specializes in mortgage loans, as opposed to a general bank, online lender, or credit union. A local lender that specializes in mortgage loans is often more familiar with the local buying process and is more readily available if they are needed by a listing agent, escrow officer, or any other party involved with the purchase that needs loan information.
Once you find a lender you like, you can set up a meeting to provide your financial information and discuss your potential purchasing budget for the purchase. Meetings can happen either in person or over the phone, internet, etc. Many lenders today have online portals to make it fairly easy to upload your documents for your preapproval, but you can always send scans via email, fax, or even physical copies if you wish to meet in person.
Once you meet with your lender and provide your financial information, they will provide you with several different loan products that may best fit your needs and target. These can include different loan types, such as Conventional, FHA, or VA, each of which come with different down payment requirements. Your budget will be determined by your income, down payment, creditworthiness, and how much you are willing to spend on a mortgage.
Once your budget has been established, we can request a Pre-Approval letter. There can often be some confusion when it comes to pre-qualifications and pre-approvals, so here is the difference:
If you are going to go through the trouble of getting some of your information together for a lender, you may as well get it ALL done so you have a document that will allow you to write offers. A pre-qualification from even a well-known bank will often get pushback from most listing agents since it is not an actual pre-approval unless you find a desperate seller. A pre-approval means a lender has verified your income, assets, and creditworthiness and has vouched for your ability to qualify for a home purchase.
Getting pre-approved for a home loan is a straightforward process that involves gathering financial information, meeting with a lender, determining a budget, and getting a pre-approval letter to submit offers. By taking these steps early on in your home search, home buyers can have a smoother and more successful home-buying experience!
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