“By failing to prepare, you are preparing to fail.” ― Benjamin Franklin
Preparation is an essential element in any successful real estate transaction, especially when the unexpected happens, and it will. Loan problems constitute a good portion of what can go wrong in a typical real estate transaction. Loan qualification standards are complex and change often, so it’s good to have your financing in place as early as possible.
The first step on the road to buying a home is “pre-qualification”. This can be done in person, on-line or over the phone. Our preference is in person. Just as the lender is pre-qualifying you, you should be assessing whether or not you want to work with the lender. In the pre-qualification meeting, you will share some basic information with the potential lender about your overall financial picture, including your debt, income, assets and credit. After evaluating this information, a lender can give you an idea of the mortgage type and amount for which you might qualify.
It is important to note that pre-qualification is different than pre-approval, a more involved process we will discuss in a future article. Pre-qualification is a good initial step that determines if you are going to be able to get a loan. It’s primary value is in preventing everyone from wasting time looking at houses they can’t buy.
Another benefit of pre-qualification is that it shows sellers that you are serious and in a strong financial position. So, in the event you find a house and there are competing offers, the stronger financial position usually wins.
As far as locating a lender is concerned, you can get suggestions and lender names from your Realtor. Realtors deal with different lenders on a daily basis and they know the good from the bad, so in many ways they are your best resource when it comes to finding a good lender. If you don’t trust your Realtor to act in your best interest, you should not be working with them.
Here is a list of what information you will need to give to the lender to get pre-qualified:
- Gross Monthly Income
- Monthly Debt
- Social Security Number (to pull credit)
Once you determine that you will work with the lender and decide to move towards the loan approval stage, you will be asked for additional financial information such as bank statements, tax returns, etc. to begin the loan process.