What You Will Need to Get Prequalified for a Mortgage

When you begin searching for a new home, the best thing you can do is start by getting prequalified for a mortgage. Taking this essential step early in the process can benefit you significantly because you can find out how much you will be able to borrow (the approximate amount you can get approved for on your mortgage loan), discuss options for loans and budgeting, and show sellers that you are serious about the home buying process. In order to get prequalified, here’s what you will need.

Income Proof

One of the first things a lender will ask to see is proof of income. Generally you can show this with your W-2 statements from the past two years, and pay stubs that show your most recent and year-to-date income from your employer (which also proves that you’re employed). If you have income from alimony or bonuses and want that included in your loan consideration, have the documentation to prove it. It’s much more difficult to get a loan if you are self-employed, so be prepared to prove your income with tax filings and other documentation if that is the case. Ask your lender if you are self-employed what they would need to see.

List of Assets

Lenders want to know that you will be able to repay a loan before they give it to you, so they also like to see what your cash flow is like and find out if you have any assets, including cash, available. The easiest way to show this is through bank statements from the past couple of months and investment account statements, but you can talk to your lender if you have questions about what they want.

Down Payment

No-down-payment loans do still exist, but they are much harder to get. In most cases you will need to have at least 3.5% of the home price available as a down payment (for FHA loans), and 10 to 20% available for conventional loans. Be prepared to show the lender that you have this available in cash; if you’re getting the money from a friend or relative to help with the down payment, you’ll need to show a gift letter so they know it’s not a “loan” (which would make it a liability for you).

Credit Score

Prequalification may not require a credit check (some lenders differentiate between prequalification, which is a quick process without a credit check) and pre-approval, which is more in depth, but your lender may ask you to estimate your credit score. Anything above 720 is usually considered excellent, while anything below about 620 may not be good enough to get a loan without a much larger down payment.

Other documents to take along for your prequalification meeting include identification ( a driver’s license or other government-issued ID), Social Security number, and anything else they request as part of the process. Once you have your prequalification you can get started shopping for the home of your dreams!

When and How to Get Prequalified for a Mortgage

When your search for a new home transitions from casually browsing through available listings on a local real estate agent’s website to actually reviewing and visiting open houses, it’s time to start thinking about getting preapproved for a mortgage. The prequalification process is really very simple, but most homeowners don’t realize just how vital this step can be in the process.

Is Prequalification the Same as Preapproval?

Mortgage prequalification is a process that gives you an estimate of approximately how much money you could borrow to purchase a home. This is a little different from a mortgage pre-approval, in that it does not generally involve an official loan application and will not be quite as exact, and it is not an indication that any specific lender has approved you for a specific loan—it is only an estimate based on the information you provide.

Benefits of Prequalification

If you walk into a store in the mall but you don’t bring your wallet, it’s going to be difficult for the salesperson to take seriously your intent to make a purchase. The same is true for homeowners who look at houses without prequalification. Since they have no idea exactly how much they might be able to borrow, these homeowners might be looking at houses that are way above (or below, although usually homeowners look at houses far above their price range) what they will be able to afford to buy.

Another benefit of this process is that you can avoid falling in love with a home that you will ultimately not be able to afford. If you are unaware that you will only likely be approved for a loan in the range of $250,000, you might begin your home search for $350,000 houses. Once you have these homes in mind, the houses available on the market that are actually in your price range might feel like a disappointment compared with what you initially saw.

It is also important to remember that prequalification is simply an estimate of how much you could likely get approved to borrow, which is not necessarily the same as the amount you would be comfortable taking on as mortgage debt, or the payment that you would be able to afford based on your net income and monthly expenses.

Spot Potential Credit Problems

The loan prequalification process also helps you spot financial areas that might become a problem for you when you do plan to apply for a loan, giving you time to sort them out prior to your loan application. This is critical in your quest to get approved for a loan, since even something that dings your credit score by 20 points could significantly impact your ultimate interest rate.

Talk to a lender today about the prequalification process, or visit the Altius Mortgage website to find a simple prequalification calculator.