In the current economy, lending guidelines have become more restrictive. What this means for you as a consumer and potential homebuyer is that pre-qualifying for a mortgage is even more important than it has been in the past. Not to be confused with pre-approval for a loan, pre-qualification is a process by which you can determine how much house you can actually afford.
How Does Pre-Qualification Work?
Pre-qualification isn’t a commitment. Being pre-qualified doesn’t mean that you’ve agreed to a mortgage with any lending institution. You are under no obligation whatsoever.
All you need to do is find a lender you feel comfortable with. They’ll act as your advisor. Obviously, you want the best advisor you can get, so you’ll want to check out the lender – that can be as easy as looking for reviews and ratings online, or asking friends and family for a recommendation. It’s reasonable to expect that the lender you’ve chosen to advise you will, at some point, pitch their mortgage services – after all, assuming that you do pre-qualify for a mortgage, it wouldn’t make sense for them not to want your business. Again, though, remember that you are not required to use those services. At this point, you’re just talking with someone who understands how the industry works and can answer your questions.
It’s all about knowing where you stand. There’s very little point in looking at ocean-view properties with tennis courts, swimming pools and multi-car garages if what you can reasonably afford is a three-bedroom ranch with a nice little back yard.
What Do I Need to Bring With Me?
When you meet with the lender you’ve chosen to advise you, bring the same information that you would bring with you if you were actually applying for a mortgage. You’re not required to do this, but it helps the lender to narrow the focus a little more. If you can bring pay stubs, a credit report from all three credit bureaus (TransUnion, Equifax and Experian), and copies of your tax returns for the past year or two, that will greatly assist the lender in helping you to decide exactly how much of a mortgage you can reasonably afford. If you have a co-purchaser, bring their information as well.
Be as accurate as humanly possible, and resist the temptation to mislead if there’s something undesirable in your credit background, or a gap in your employment history. You might get a pass in the pre-qualification stage, but once you get to the point of actually applying for a mortgage, it’s practically a given that the lender to whom you’re applying for the mortgage will unearth whatever it is you’re trying to hide.
What you’re trying to do is give the lender who’s advising you on your pre-qualification an accurate, consistent financial picture. They’ll help you pre-qualify, and once you’ve got that step out of the way, you can go shopping for your new home.