How do I pre-qualify for a home loan? Here are two ways to find out -- one "good" way and one "excellent" way.The good way is via pre-qualification. The excellent way is via pre-approval.
Here's what you need to know about both.
Pre-qualification the “good choice”
Getting pre-qualified for a mortgage is a quick and easy process. Via phone, email or internet, your lender will ask you for some basic information and -- based on what you share -- you can know whether you might qualify for a mortgage.
Personal information - Full name, Social Security Number, Date of Birth, Current address?
Approximate monthly income?
Have you been with your current employer for two years?
How much money do you have for down payment and closing costs or will you be getting a gift from a family member?
How much are you currently paying for housing?
Based on this information, your lender will run a credit report, do some basic number crunching and make an approximation of how much you can qualify for and which mortgage programs might fit your financial profile.
All this information is subject to verification and your lender will be giving you nothing more than a “guestimate”
Pre-qualification is a good start but in a very competitive real estate market it may not be enough to get the seller of your dream home to accept your offer.
Pre-approval the “excellent choice”
In the mortgage pre-approval process, your lender will go deeper into your financial picture. Instead of just being asked about your income, your assets, and your credit, you will be asked to prove it.
To get a pre-approval you’ll need to provide (among other things) copies of your two most recent federal tax returns (including W-2s, paystubs, and statements for all bank and investment accounts). If you’ve had a divorce, bankruptcy, foreclosure or short sale in your past you’ll need to provide the documentation for those as well.
There’s nothing worse than finding the home of your dreams and then having hidden collections, judgments or liens which may stand between you and the home you had your heart set on.
The excellent choice is also the most time consuming (in the beginning) but it will make your offer considered “same as cash” and allow you to close quickly.
Two tips for pre-approval letters
1. Always be open and honest about everything in your financial profile. Lenders have access to more information than ever and a “hidden surprise” may be costly. Finding one while you’re in escrow may result in forfeiture of your earnest money deposit.
2. Always require a property specific approval letter - This is the “excellent” choice. A non-property specific letter is just a pre-qualification, only a “guestimate”. In Southern California property taxes and HOA fees can vary greatly and have a significant impact on your new monthly payment and your ability to qualify.
We have helped countless home buyers make the “excellent” choice and they all have one thing in common, they contacted us.
Contact a first time home home buyer specialist
Thanks to Dan Green from Daily Mortgage reports for some of the information