When you first decide you are ready to buy a home it’s tough understanding what steps are needed to get started. Having the right professionals to guide you and walk you each step of the process is crucial. Your Real Estate Agent should have a good idea of what steps are needed and who can help you through each phase. In this article, we will discuss the steps to getting pre-qualified for a home loan with a lender.
Something to Note:
Make sure to do your due diligence with lenders before releasing any personal information over the phone or electronically. One of the many ways to verify a licensed Loan Officer is to request their NMLS number and look it up at NMLS Consumer Access where you can verify their name, company, and office location.
Step One – Speak with a Lender
This seems easy enough but if you are new to homebuying, you may not know what questions to ask or how the first conversation will go. Here are some ideas and things the lender might discuss:
- How long have you been renting/leasing?
- What kind of monthly budget are you planning for?
- Is this your first home purchase?
- Are you self-employed or do you work for a company?
- Are you married?
That first encounter with a lender is discussing basic background to get to know you and better understanding how they can help you with your financing. These questions all serve a specific purpose in proposing the best loan program for you.
The FREE credit score provided through banking and/or online sites is not an accurate representation for the FICO score pulled with a mortgage lender. There are 2 types of credit reports a lender can pull; hard FICO Pull & soft FICO Pull. Hard Pull credit reports will report a new credit inquiry on your FICO report where a soft pull does not show as an inquiry. Unless abused, typically a hard pull for mortgage purposes does not have a substantial impact on your FICO score.
The soft pull report is for informational purposes and typically cannot be used to make a true pre-qualification for a home loan.
A true pre-qualification for a home loan should include a hard FICO pull so the lender can run the Automated Underwriting System (AUS) to determine loan eligibility. The AUS review is crucial because it reads the income, credit and assets against underwriting guidelines to determine eligibility.
Step Two – Send your Lender Documents to review
Your lender may request initial documentation to complete a pre-qualification review. The documents include information that describe your income, assets and credit. It is NOT a requirement to send a lender documents during the pre-qualification phase. However, it is highly recommended to both save you time and money AND to give credibility to your pre-qualification when submitting offers on homes.
Your initial documentation can reveal opportunities for getting a better interest rate or qualifying for a higher loan. Below is a sample of some of the initial documents a lender may request:
- Last 2 years Tax Returns, W2 forms, and/or 1099 forms
- Last 30 days Pay Stubs
- Social Security and/or Pension Award Letter(s)
- Most recent bank statement(s)
- 2 forms of identification
- DD 214 Member copy 4 (VA Loans)
- Signed authorization to review credit
Most of the time, clients are working over the phone or email. Just be sure you are sending everything securely to your lender. Financial institutions do everything in their power to protect your information. Request a secure way to send your documents if submitting electronically.
Step 3 – Review your Pre-Qualification
Your pre-qualification review should be a blueprint of your loan program and product when you enter into a purchase contract to buy a home. The pre-qualification serves as credibility that you can secure the funds needed to buy a home from a seller. The work put in upfront in this phase is preparing the way for when you find your dream home!
Pre-qualifying can take as little as a day to as long as a couple weeks depending on the client and/or sometimes the circumstances of the review. No matter how long it takes, preparation is key for the success of any home loan closed. Having the right team to support you in your home search can ensure that success.
A good Lender or Loan Officer is willing to take the time to answer your questions and discuss the lending process. You do not need to commit to anything when you speak with a Loan Officer about your prospect of buying a home. If you feel pressured into commitment, hang up and call someone else for guidance or elect to meet with the Loan Officer in the office.