Know what you’re able to spend on a home
Before you begin shopping for a home, you’ll need to meet with a lender to get pre-qualified for a home loan. Getting pre-qualified enables you shop for a home with confidence and will will help you:
- Determine a comfortable price range;
- Understand the types of loans you qualify for;
- Determine your monthly payment;
- Estimate the down payment and closing costs.
When you’re ready to make an offer on a home, your lender pre-qualification must accompany the purchase offer. While the pre-qualification form is not a guaranteed loan approval, it does let the seller know that you’re likely to be able to obtain financing.
How do I get “pre-qualified”?
When you’re ready to begin shopping for a home, contact a mortgage broker or financial institution. You can ask friends and family for a referral, or your Buyer’s Agent can recommend a lender who regularly works with buyers in the area where you’re looking to purchase.
The process of getting “pre-qualified” is quick and easy. It starts the process of discovering a buyer’s purchase power and usually begins with a meeting or phone call to discuss income and employment, credit and liabilities, assets and desired payments. Your credit report is then reviewed, enabling a “would be buyer” to become pre-qualified fairly quickly.
Getting pre-qualified is not a loan application and doesn’t commit you to using that lender — you can wait and decide on a lender once you’ve made an offer on a house and received official Loan Estimates (fee schedule) from each of your potential lenders.
Eventually, the lender will require additional documentation once you complete your loan application, which generally includes pay stubs, W-2’s, 1099’s, recent tax returns, bank statements, and other documentation regarding income, assets and liabilities.
Once you’ve been pre-qualified, it’s important not to make any new financial commitments, such as buying a car, new furniture, or applying for a new credit card. Lenders take a second look at your credit in the days leading up to closing, and any changes to your credit picture could jeopardize your loan approval and cost you that new home.