When you make the decision that you want to buy a home, the fun and exciting part is actually looking for homes online and in person.
However, before you actually start to look in person or before you fall in love with a certain property you need to at least get pre-qualified and even better get pre-approved.
This way you will have a good idea of what you can actually qualify for and you will be looking at properties that fit that price range. For the extra work up front this will save you from potential issues if you don’t.
This is the fastest and easiest step to give you a ballpark figure of what you may be able to qualify for.
During this process you’ll speak with a loan officer who will go over your work history, income, assets, debts and credit history. Using this information the loan officer will be able to give you an idea of what you may qualify for, what rate you may qualify for, how much of a down payment you will need and what loan programs may be available.
Even though this is a quick option, it does leave a lot of room for error and potential issues because the loan officer has not actually seen any of your paperwork yet.
Some lenders will issue a pre-qualification letter based on just a conversation, others will require the full loan application and credit.
A pre-qualification should only be used to give you an idea of what you can expect. This is a great time to get answers for a lot of your questions and to find out what the next steps are for you as you go through the process.
You should not be looking at properties with a pre-qualification only. It is in your best interest and for all parties involved that you take the extra time to make sure you have a pre-approval before you do.
The Pre-Approval is a Conditional Mortgage Commitment
After your pre-qualification you will start the pre-approval process. Heck, you can just skip getting pre-qualified and move right to the pre-approval process.
At this time the loan officer will review your credit report, do a full loan application, look at your income and asset documents. Then they will run your application through an automated system called Desktop Underwriting or Loan Prospector to get you an automated approval with conditions.
With this you will be able to receive a pre-approval letter. This letter is sent with your offer to purchase when you make an offer on a home. It let’s the seller and real estate agent know that you have gone the extra step and have had your actual income and assets reviewed.
It is best to supply your income and asset documents for review up front. Especially if you are self-employed or have variable income such as getting paid by the mile, commission, part-time, seasonal, bonus, overtime and so on. Even if you are a W2 salaried employee there may be additional items on your tax returns such as unreimbursed business expenses that can reduce your qualifying income.
One step further would be getting a pre-approval on a to be determined property. With this process you submit all of your income and asset documentation and the loan officer submits as full of a loan package as possible without a property into underwriting. The underwriter looks over all income and calculates to the penny what your qualifying income and assets are.
Who benefits from a TBD Approval? Everyone! As the buyer you can breath a sigh of relief since the largest step in the process is over and you can feel confident finding that perfect home. This will also strengthen your pre-approval letter, and if you are up against multiple offers the seller will see that you are less of a risk since you have already gone this extra step. This process takes a bit longer, but is well worth the wait and security it brings you.
Understand that the pre-approval only lasts as long as your documentation is current. If it takes you over 30 days to go under contract on a home then you may need to provide updated pay stubs and asset statements.
No matter what, the property needs to be approved as well, with an appraisal, title insurance, home owners insurance, HOA info if applicable and in most cases proof of earnest money.
So take a little bit of extra time up front to get a pre-approval. Your sanity will thank you. Contact your local loan officer when you’re ready to start the home buying process.
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