Getting Pre-Qualified for a Loan

 

Once you’ve decided to become a homeowner, if you can pay cash, the next step is to select a knowledgeable real estate agent who works the area or areas that you like.  Otherwise, the next step is getting pre-qualified for a mortgage loan. 

If you have good credit, getting pre-qualified may be as simple as having a telephone conversation with a loan officer with a bank or mortgage company.  Giving your name, address and social security number allows the loan officer to pull and review your credit. 

You will be asked to state your gross monthly income and the amount of current monthly bills such as car payments, student loan payments, credit card bills, etc.  You will, also, be asked how much cash you have available for a down payment and closing costs.  

Assuming your credit report is satisfactory, and based on your oral statements, the loan officer will write a letter pre-qualifying you for the maximum mortgage loan that you qualify for.  This letter can be e-mailed or faxed to you or to your real estate agent. 

Getting pre-qualified is an expedient shortcut to give you an estimate of how much you can borrow, and gives your real estate agent, seller’s agents, and sellers a small measure of confidence that you are financially qualified  to buy a home.  It allows you to go house-hunting without having to dig up your tax returns, bank statements, etc., but these items (and more) will be required when you make an actual written application.  

A pre-qualification does not guarantee you or anyone else that you will get a mortgage to buy a home.  Some real estate agents will show you homes without seeing a “pre-qual” letter, but the truth is—both you and your real estate agent need to know what you can afford before the property search begins.  In addition, in a hot market, many sellers will not consider an offer without seeing a “pre-qual” letter. 

A much better option is getting pre-approved for a mortgage.  A pre-approval letter assures a seller that you have made full application and you have actually been approved for a mortgage--subject only to a satisfactory survey and appraisal of the property, paying the first year’s hazard insurance, etc. 

A seller will look at your offer favorably over an offer by another buyer who is not pre-approved.  In a hot market, there frequently are multiple offers on the same property.  If the offers are similar, the pre-approved buyer will get the property. 

Ideally, the pre-approval process should start well before the home search.  Sometimes credit reports reveal blemishes that need to be cleared up,  and sometimes borrowers are advised to pay off consumer debts to be able to comfortably afford a home. 

The approval process is a two-way dialogue between a borrower and a loan officer.  The loan officer has to verify the borrower’s credit worthiness, and the borrower has to be comfortable with the required down payment, closing costs, and monthly payment, including taxes and insurance.  The goal is to establish a purchase price that you (a) qualify for and (b) are comfortable with the monthly payment.