You’re ready to purchase your first home. You have a steady job, some savings for a down payment, but you aren’t sure what to do next. Before you go any further in the house hunting process, you should start thinking about financing by getting pre-qualified for a mortgage.
What is Mortgage Pre-Qualification?
Mortgage pre-qualification is (usually) a quick and simple process of determining how much mortgage could potentially fit your budget. The process includes analyzing your current employment, income, assets, and existing debt to understand the impact a mortgage could have on your income and finances. Getting pre-qualified will give you a general idea of how much home you can afford with monthly payments that will fit your budget and qualifications.
How Do You Get A Mortgage Pre-Qualification?
When getting pre-qualified your Lender will ask you questions to get a good feel of your financial profile.
To get pre-qualified for a mortgage, you will be asked to provide:
- Information about your employment & income
- a list of your assets
- information about debt that you currently owe
Once your lender has run some initial calculations, you will have a much better idea of the price point to focus your home search.
This is also a great time to begin to discuss various mortgage loan programs that would work well for your situation, such as a first time home buyers mortgage, and how much savings you will need for a down payment based on the financing options available to you.
A pre-qualification is based on information you provide and therefore is a quick analysis and may not always be precise.
It’s important to understand, a pre-qualification does not provide you with an approval. At this point, there are many other factors that are needed to actually get an approval.
With the pre-qualification in hand, you can start house hunting with the knowledge of how much you can afford. But don’t forget that you should also get a pre-approval letter.
What is Mortgage Pre-Approval?
A mortgage pre-approval is a deeper dive into your finances than a pre-qualification is, and the process is similar to actually applying for the mortgage instead of simply receiving a qualification for it. Most Real Estate Agents won’t even begin to help you start to look for a home without a formal pre-approval letter. A pre-approval will allow you to present offers on homes that fit into your qualified price point.
A pre-approval is more precise than a pre-qualification and documented. While a pre-qualification is based on information you verbally provide, a pre-approval is most often documented to support that information.
How Do You Get A Mortgage Pre-Approval?
For the pre-approval letter, a few extra steps will be taken.
At this stage the mortgage lender will:
- review pay stubs, W2’s and possibly tax returns to verify income
- request asset statements confirming enough liquid funds are available to close and any needed reserves.
- pull a credit report from the three major credit bureaus
- verify your monthly obligations
- review your credit score and credit history
Your Lender will likely ask lots of questions during this process to determine and hopefully avoid any potential issues that could come up later in the process.
With a pre-approval, you will be able to narrow the loan options that are best for you.
At the end of this process, your Lender will provide you with a conditional pre-approval letter.
A conditional pre-approval states that provided your financial circumstances do not change, and the home you find is financeable and meets certain conditions, you would be approved for a mortgage. Your pre-approval letter will be presented by your Agent along with any offer you may write to let the Seller know your offer is strong and that you are a well-qualified buyer.
So simply stated, getting pre-qualified gives you an idea of what you can afford. A pre-approval gives you the assurance that when you find your dream home, you can afford it, and you are ready to finance and buy it!
Let Genisys Credit Union start the mortgage pre-approval process with you, with the help of a dedicated mortgage consultant. We have a variety of affordable mortgage loan options to help get you financed and into the home of your dreams.
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