Pre-Qualifying for a Mortgage
04/17/2024
Pre-Qualifying for a Mortgage
The housing market is poised to see potential drops in interest rates. Are you ready? If you are looking to mortgage a home, what you do before you start looking is just as important as house hunting.
Pre-qualification is an extremely important step in the mortgage process and should be done after you have saved a down payment and before you begin house hunting. Note that pre-qualification is NOT a guarantee of securing a loan or loan amount. Instead, it lets you see how much you may be able borrow for a mortgage and shows available mortgage options. If you are ready to get pre-qualified, let’s talk a little about the process for that.
Before you approach your lender, make sure you have taken stock of your financial situation. It is recommended that you look at your credit report. See if you have anything that might be hurting your credit, or any loans that are almost paid off. You can check your credit report online at AnnualCreditReport.com, which is the only FDIC approved website for credit reporting. If you have items that might be lowering your credit score, reach out to the appropriate entity to see if you can get them removed or resolved. If you can, pay off any loans that only have a little left on them. This will help your debt-to-income ratio. While your lender will only need to do a “soft” credit check for a pre-qualification letter, this can help speed up the process later on when you are applying for a loan.
Next, you should be completely aware of your budget. Various mortgage calculators and websites can give you information like current interest rates, home prices in your area, and expected loan payments. Have a complete budget already drawn up for all expenses and possible upcoming expenses, and compile financial paperwork your lender will need to calculate your pre-qualification amount. This may include:
- Income
- Current loans
- Asset information
- Bank statements
Your lender may not require all these things, or they may ask you to provide other paperwork. Give them a call beforehand to make the most of your initial conversation.
Finally, you are ready to get pre-qualified. Pre-qualification is not an extensive process and can sometimes only take an hour. Set-up a time to meet to discuss your plans and financials with your chosen lender. They will then draw up a pre-qualification letter that you can present to your realtor that includes an estimate of how much you may be able to borrow. Keep in mind that many realtors and sellers will not begin the home-buying process without at least a pre-qualification letter. Also keep in mind that you may sometimes pre-qualify for more than your budget may allow. Use the budget you made earlier to help determine how much you realistically can afford in a monthly payment. Make sure you include real estate taxes and homeowners’ insurance.
Once you have your pre-qualification letter, you are ready to make a list of all your needs and wants for a home! Use your pre-qualified estimate as a guide for house hunting. Do not entertain properties that are above that amount, or above your pre-budgeted amount. This will ensure that once you do find a home, there is no hold-up in the mortgage process.
Here at The Savings Bank, our mortgage team has the experience and local knowledge to help you at all steps of the home buying process. If you would like to speak to one of our mortgage lenders, call 1-800-582-2265. Happy house hunting!
Member FDIC. Equal Housing Lender. NMLS #462552. Loans Subject to Credit Approval.