One of the initial steps that you have to take in finding your dream home is the Pre-qualification. In the Pre-qualification stage, you and your preferred lender will try to find out if you are eligible to get a loan.
What is Pre-qualification?
Pre-qualification is the process by which the lender evaluates your eligibility to get a home loan. They do this by collecting information and documents such as your employer information and your gross income. They will also like to know how many assets you have, and your current expenses.
Your lender will try to determine how your credit looks and how much you can afford to buy. They will also figure out what is the most appropriate type of loan for you. The mortgage pre-qualification is free and done quickly if you are ready with your paperwork. The process only involves you speaking with a loan officer to assess your financial situation.
Why Do You Need to Get Pre-qualified?
The pre-qualification process is very useful especially if the home buyer is not sure how much mortgage he can afford. Bear in mind that pre-qualification is not binding and is simply a way of gauging your buying capability.
It is important you get yourself pre-qualified as this allows you to prepare for the rest of the home buying process. The pre-qualification gives you the confidence to search for a house which you can make a credible offer. Once you are pre-qualified, you would know the type of home in Denver you should be looking at, how many homes you can afford. You also need to know how much your home loan payments will likely be, and you will find it easier to hire a real estate professional.
What Are the Key Documents That You Need to Prepare for the Pre-qualification?
- Pre-qualification Application – it is a standard form which you need to accomplish by providing information such as your names, current address, birth date. Additional are social security number, and your financial information (income, assets, liabilities). You will also authorize the lender (may also be a broker or underwriter) to request your credit score. As well as documentation from your employer and your bank.
- W-2s – You need to have your W-2 for the last two years, at least.
- Pay Stubs – Prepare your most recent pay stubs along with any employment documentation indicating any extra income arising from overtime, commission, or bonuses.
- Tax Returns – Prepare at least two years of tax returns along with tax documents on any non-employment income.
- Validity and remaining term on your visa, if you are on an immigrant status.
- Any additional documentation that your lender may require.
The pre-qualification will determine your readiness for the pre-approval process. If you are qualified to move to the next phase, your lender will send you a letter confirming it. Typically, they will let you know the loan program you are qualified to apply for, amount, terms of a mortgage. You will also be informed of the qualifying rate.
While pre-qualification is a necessary step to the home buying process, circumstances can still change from the receipt of your pre-approval confirmation to the loan application. It is the best thing to do keep your documents and records intact, complete, and error free. Also, don’t make major purchases until you are able to purchase your new home. Lastly, continue to save money, just in case.
The joy of finding your dream home is not too far to achieve if you carefully follow the steps to pre-qualification.
If you have questions regarding the pre-qualification process, don’t hesitate to get in touch with real estate professional Raj.
If you are confident that you have the financial capability to get a home loan, would you still consider getting yourself pre-qualified?