You’ve done it! You took that leap, and decided that you are ready to purchase a home. Then quickly realized that it can be daunting and overwhelming when doing your initial research. But don’t worry. It doesn’t have to be. There are a lot of hurdles to buying a home, but securing your home loan doesn’t have to be one of them.
Step One: Mortgage Pre-Qualification Versus Pre-Approval
You probably already have a pre-qualification letter saying that you can probably buy a house in a particular price range, so why isn’t this enough? A lot of home buyers find this part of the process confusing, and understandably, it can be. Your pre-qualification was probably done over the phone or on your first meeting with your lender. They asked you a bunch of questions about your income, your job and maybe even pulled a “soft” credit report to get some idea of how much debt you have.
Based on this information, they gave you the details on the kinds of loan programs you’re eligible for and how much buying power you have. You probably got a letter that you could show your Realtor to help guide the buying process. The difference between the pre-qualification and the pre-approval is simple: a pre-qualification is based largely on your word. If you give the lender incorrect information, they’ll give you a pre-qualification letter that’s not right.
A pre-approval, on the other hand, takes a harder look at your background, work history and requires a full credit report and FICO score to ensure that you can, in fact, pay back the loan.
Step Two: Documentation
Your next appointment with the loan provider is going to be delivering documents, and consent to pull a full credit report. Documentation you’ll be asked to bring will include pay stubs, bank statements and tax returns, along with other information that may be needed to verify your income source or sources. Self-employed people, for example, are sometimes required to prepare profit and loss statements. If you have assets like a 401(k) or even a CD, you’ll want to bring the details on these, too.
Step Three: The Good Faith Estimate
You’ll then receive a copy of something called the Good Faith Estimate (GFE). You will more than likely receive it at the same meeting where your lender pulls that full credit report and takes all your paperwork. This form explains exactly how much they expect you’ll need to bring to closing if applicable, along with itemized estimated fees to plan for at closing, your interest rate, and what your approximate monthly payment would be. If you’re shopping your loan, collect these and compare them side by side before you make your final choice on what lender you are going to go with.
Step Four: Acceptance
All that’s left is to call the lender you’ve chosen and let them know you need that pre-approval letter sent over to your real estate agent.
Understand that a pre-approval is not a guarantee that you’re going to get the money you need to close. Several things can go wrong along the way through underwriting, including, but not limited to:
– Unverifiable income (this is often due to issues with overtime)
– A change to your credit score.
– An increase in your debt to income ratio
– An undocumented change in employment
– Assets that are unverifiable
The best plan is be totally honest with your lender when you get your pre-approval so that you don’t get a last minute call telling you that your loan has been denied. Make sure you continue to pay everything on time and don’t take out new credit lines or add to old ones until you’ve been cleared to close and have the keys in your hands to your new home.
When is the Best Time to Make an Offer?
Ideally, you should have a pre-approval letter in hand prior to seeing any potential homes. This will give you a better idea of what you can afford, as well as what price range of homes you can expect to see. This will save you time in the long run, and will ensure that when you do find your dream home, that your agent can accurately write up that offer letter for you.
When You Need a Loan for Your Home…
Finding a lender you can trust these days can seem overwhelming, but here at The Kibler Group, we always have recommendations to share with you should you need assistance. Contact us today at KiblerGroup@kw.com or 719-440-1145 to get the process started. We look forward to helping you find the home of your dreams.
The Kibler Group
Keller Williams Partners