Your top three questions about mortgage pre-qualification
Imagine you’ve found the perfect lot in your ideal community and you’re ready to get started building your new home when someone ask if you’re pre-qualified. Buyers often get tripped up and nervous about this question thinking they have a long and confusing process ahead of them.
The reality of pre-qualification is much easier than many buyers think. To help you avoid a lot of unneeded stress, here is the Need-To-Know on pre-qualification.
1. What is pre-qualification?
Pre-qualification refers to one of the first steps in the home search. It is a fairly easy, informal, and quick process. First, you will be expected to supply a bank or lender with an overview of your financial background from the past two years. Then, the bank will then give you an idea of the amount of a mortgage you might expect to qualify for.
Pre-qualification is not a set in stone promise from the bank, and it does not include an in-depth look at your financial history. It is entirely based on information that you voluntarily provide to the bank. It can be completed over the phone or even on the web. You are not required to work with the bank that walks you through the pre-qualification process in completing your final mortgage. By no means is it a concrete process, but it supplies you will a ballpark figure to assist you in your home search. It is an estimate of what your buying power might be once you have submitted a formal mortgage application.
This process is often confused with pre-approval, which takes the next step to completing an official mortgage application. In the process of pre-approval, the bank or lender conducts extensive checks on your credit, debt, and assets. There is also typically a fee that accompanies the application. Pre-approval will also lead to a written commitment from the bank or lender.
2. What are the advantages?
The number one advantage to the mortgage pre-qualification process is that it gives you an idea of your price range. After you have completed pre-qualification, you will know your expected buying power and how much you will be likely to pay as a down payment. With this price range and initial cost in mind as you are considering homes, you will think like a savvy homebuyer. Pre-qualification will keep you from falling in love with homes that are out of your price range, and will keep you focused on the right homes for your financial background.
Another notable advantage to pre-qualification is that it gets the ball rolling. Once you’ve taken the first step in securing a mortgage, you will seem like a much more serious prospect to sellers. A seller is much more likely to consider your interest if you are a pre-qualified homebuyer, because it shows that you have taken steps in the right direction.
3. What are the steps?
The first step towards pre-qualification is researching banks and lenders that you might want to work with long-term. You are not required to work with the bank that gives you pre-qualification, but it will be encouraged, and save you the time and energy of finding another bank for your mortgage.
Then, prepare a summary of your financial background. You’ll most likely need proof of employment, your tax returns for the past two years, and a credit report, but the requirements may vary depending on the bank or lender. After you’ve done your research on the respective banks, you can speak with a representative to see exactly what will be required as you take the first step to acquiring the home of your dreams.