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HOW TO GET PRE-QUALIFIED TO BUY A HOME
Now that you are serious about entering the market to buy a new home, the first important step in the journey is to complete the pre-qualification and loan pre-authorization process. Knowing how much you are qualified to spend will save you and others valuable time and resources as you focus your search on homes that are within your financial reach. This will also help to increase your house hunting confidence and effectiveness. If you are not sure how to get pre-qualified, this tutorial is for you.
Pre-Qualification and Pre-Authorization:
Pre-qualification is fast and easy, and it should be free. Simply choose a lending institution that specialized in home loans and ask to speak with a loan officer. Check with family, friends and work associates for lending company recommendations. Real estate agents may have the best ability to direct you to the best lending firms based on past experience. They will be eager to help.
By making a phone call to the right loan officer, you can get an initial assessment of your home purchasing power in as little as an hour, but certainly within a day.
- The basic information you will be asked to provide to the loan officer at this stage is:
- Name, date of birth, Social Security number
- Address, email, where you work and how long
- Your wages (combined if married and both work)
- The down payment amount you expect to make (Note: if you are also selling a home , let a real estate agent perform a comparative market analysis – CMA – to help determine your equity and down payment capability)
- THAT’S IT. Within a day you will know what your expected house purchase price range is and you can start your house hunting knowing what you can afford. If the amount is not where you want it to be, the loan officer can give you suggestions on improving you credit score and help you with other financial measures you can take to increase your buying power. These measures can take months to have the desired effect and you may need to delay your serious house hunting efforts if you are not satisfied with the pre-qualification number.
- Once the pre-qualification step is complete and you are happy with the result, it’s time to begin the actual loan pre-authorization (with no obligation). This step should be started before you begin before you start making offers on homes. Pre-approval can strenghen a buyers position with the seller and reduce the chances of last minute surprises.
Pre-authorization is the next step after pre-qualification. It allows you to make an offer on a home knowing what you are actually pre-approved to spend. Unlike the pre-qualification step, the pre-authorization approval will require formal documentation to support the pre-qualification assumptions. Once the documents are submitted, the pre-authorization process should only take a few days to a week if you are working with the right lending institution.
- In the appendix found at the back of this tutorial, you will find a complete list of the documents that may be required for pre-authorization. Not all will apply and this should be self-explanatory. Your loan officer will help you determine which of these document submission requirements apply to you.
- You should expect the loan officer to take the time to work with you closely to insure the documents are in order so that the pre-authorization process can progress quickly. If at all possible, a personal meeting with the loan officer is preferred. However, if proximity or travel is a problem, document submissions and the pre-authorization process can be completed via fax and email.
- Be sure the information you provide is accurate and complete! Honesty is the best policy and this will keep the process from starting over or from being derailed all together. Use the loan officer as a true partner who is on your side and knows how best to manage accurate information, whatever it may be.
- Once the documents are submitted a pre-authorization amount can be determined by an underwriter. You’ll find that a lending institution with an in-house or local underwriter will be much faster with their response than those who do not.
- THAT’S IT. With your pre-authorization, you can confidently start your home search knowing how much you will be able to purchase. This is also a great bargaining tool when negotiating a purchase price with the seller.
How Long Is My Pre-Authorization Valid?
Your pre-authorization is good indefinitely unless something changes in your personal financial situation! If something significant does change, you will need to notify the loan officer and go through a re-evaluation process. For this reason, pre-authorized house hunters are strongly advised against the following actions during the house hunting process:
- Changing your employment or hours worked
- Refinancing a car, boat, etc.
- Using credit cards excessively, missing payments and increasing debt
- Spending money earmarked for a down payment
- Buying expensive items like appliances or furniture for your new home before you buy it
- Making or encouraging inquiries into your credit report
- Co-signing a loan for anyone
- Making large deposits or transferring funds without checking with the loan officer in advance
Choosing the Right Lending Institution:
Having the right lending institution can make a big difference in your home buying experience and your ability to complete the loan approval process in a timely way. Here are some questions you can ask before you start the pre-authorization phase:
- Are you dealing with a licensed home loan officer who is required to go through continuing education to stay informed on the best possible loan programs available?
- Are you dealing with a lending institution who specializes in home loans?
- Is the loan officer able to shop around to find the best overall loan solution for your situation with full consideration of interest rates, down payment options, mortgage insurance requirements and other fees?
- Is the loan documentation and underwriting (decision making) done locally in order to improve the turn-around time and potentially avoid weeks of delays?
- Can you find good reviews about the company and is it highly rated by accredited groups?
- Has the lending institution offered teasers that sound too good to be true? (If so, get independent reviews and watch for hidden fees and surprises that can come once you are committed.)
- If your credit score isn’t where it needs to be, will your loan officer take the time to work with you, sometimes over the course of many months, to create a plan of action that will improve it?
When Should I Get Pre-Qualified?
- If you are even thinking about buying a house, get pre-qualified now. Ideally, this process should start 4-6 months before you plan to buy. This will give you time to help resolve any credit issues that may prevent you from maximizing your buying power.
- If you feel very comfortable with your credit score, income level and financial reserves, at a minimum you should complete the pre-authorization process before you actively start looking for a home. This will enhance your negotiating power and ability to move quickly when a great opportunity is found.
Can I Buy a House?
The chances that you can qualify to buy a home are probably better than you think. If you are not sure, don’t just wonder about it or assume the worst. Let your lending institution answer this question as part of the quick, easy and free pre-qualification process.
Getting Additional Help
If you need help choosing a home Mortgage Company and with knowing who to call, a real estate agent may be the best one qualified to provide you with recommendations that will get the pre-qualification efforts started off in the right direction. A good agent should be happy to make recommendations with no obligation. Once the process is complete, they will also be able to help, at your request, with a targeted search for the home that is just right for you.
Contributing Author – Brent Porter, Loan Officer – Utah Mortgage; BPorter@UtahMtg.com
Possible Pre-Authorization Document Requirements
The exhaustive list below covers a wide range of borrowers and many of the points noted may not apply to your own case. Your loan officer will help determine the document requirements that are specific to you, answer your questions and guide you through the process.
- Copy of personal ID (Driver’s License, Passport, Social Security Card or Birth Certificate
- Tax returns and W-2s from the last two years
- Business tax returns for the last two years (all federal form pages)
- Address(s) where the last two tax returns were filed from
- Pay stubs from the last 30 days
- Work history from the last two years
- If starting a new job: Job offer letter or contract or employment transfer letter or military orders/relocation package
- Bank statements from the last two months (60 days), with all pages of checking, savings, retirement and/or liquid asset account statements (as needed for proof of down payment plus any remaining reserves)
- Explanation of any “large deposits” to your accounts not payroll related
- Proof of retirement income
- Previous two months statements for stocks and bonds or investment accounts with the name and address of the broker
- Two most recent statements for 401K or retirement accounts
- Documents for funds liquidated (401K, stock, mutual funds, etc.) showing acceptable terms of withdrawal.
- Copy of divorce decree signed by a judge with all schedules and discharge
- Six months history of child support payments or alimony payments
- Bankruptcy discharge paperwork signed by a judge
- Bankruptcy paperwork and any mortgage statements from the past 12 months
- Any court ordered or legal documents signed by a judge
- An explanation of any credit inquiries (pulls) in the last 90 days
- A detailed letter explaining any late payments made within the last 12 months
- Last 2 years of unofficial university transcripts (if you attended within the last 2 years)
- Documentation for student loan payments or deferred payments for more than 12 months
- Name, address and phone number of any gift donor
- Proof of sufficient funds to close from an acceptable source