February 26th, 2015
Before we talked about things you can do to improve your credit score. Those need to be started a few months before you apply.
Today we’ll look at some tips for helping you pre-qualify for a loan to have a good idea of what you can afford. The next step is to get pre-approval before you look at houses. When you find your home, you will want to move quickly with your Realtor through the bidding and purchase process. Bidders who are pre-approved are looked at more seriously than those who aren’t.
Pre-qualification starts the loan process. Once a lender has gathered information about a borrower’s income and debts, a determination can be made as to how much the borrower can pay for a house. Since different loan programs can cause different valuations a borrower should get pre-qualified for each loan type the borrower may qualify for.
The pre-approval process is much more complete than pre-qualification. For pre-qualification, the loan officer asks you a few questions and provides you with a pre-qual letter. Pre-approval includes all the steps of a full approval, except for the appraisal and title search.
So, you may want to use the pre-qualification to find any red flags that you need to take care of before going through the more official pre-approval process.
And because pre-qualification doesn’t look at your credit score, you will want to verify everything on your own before you submit the application for pre-approval.
By going online to use a mortgage calculator, you can get a ballpark figure that will start to align you with what you can afford. Then you can look at your current spending patterns and your budget to find out what you want to choose to afford.
In a folder or large envelope, gather up recent pay stubs, two years worth of W-2 forms, and the tax returns for the prior two years. Additionally, if you have any other documents relating to income, assets, or investment accounts, gather up recent statements for that. This will also help you have the documentation in one place when you apply for pre-approval.
Add up how much money you have coming in. Add up how much money you owe for car payments, credit cards, and other debts. Your annual gross income divided by your total debt should be less than about 36% for the best interest rates. Every situation is unique and a mortgage loan officer will be able to work with you to find a mortgage that works with your needs.
Work with a reputable mortgage loan officer. A good loan officer will diligently monitor interest rates for their clients, and industry trends that may impact which loans are better for you. A loan officer will also offer recommendations as to the best time to move from pre-qualification to pre-approved.