What to Expect During the Mortgage Qualification Process
I am going to speak here primarily about getting a mortgage pre-approval, versus merely a pre-qualification. A pre-qualification is a straightforward, simple check to see what you can afford based on your income/debt levels, down payment, employment history, perceived credit score, etc.
Getting pre-qualified with a bank or mortgage lender is pretty quick and easy but will not, unfortunately, carry much weight with home sellers or their listing agents. That’s because a pre-qualification is just an estimate of what you are likely to qualify for when it comes time to actually begin the loan process. Your credit report may not have even been run during the pre-qualification process. And that report is the key to it all.
If you and your spouse collectively make $175,000 a year, but one or both of you have terrible credit scores or you are spending more than you are making (i.e. a poor debt-to-income ratio), that could be a problem. You may not qualify for a loan, may qualify only at a higher interest rate, or may need to put the home in just one person’s name (which would mean a smaller loan amount because it would be based on just one income).
A pre-approval, on the other hand, is a written, conditional commitment from your lender which says you are approved for a specific loan amount. Going through the process of getting a pre-approval shows sellers you are a serious buyer. And in today’s Towne Lake and Cherokee County real estate market, where homes are selling very quickly and sometimes receive multiple offers, you want every conceivable advantage you can have as a buyer.
As a Realtor, if I had to help my sellers decide on two offers, both for full asking price, but only one buyer had a pre-approval letter, the pre-approved buyer’s offer would be the one to choose. In my decades of real estate experience in the Cherokee County and surrounding area, I have found having a buyer with a pre-approval is probably going to make that closing ten times more likely to happen.
The pre-approval process is not all that difficult, it’s just a more thorough look into your background and finances. It involves a loan application, verifying income, asset and employment documentation, running a full credit report and underwriting the loan file. Think of it as getting the loan started before you actually buy the home. To prepare yourself for the process, you will need tax returns (at least two years), pay stubs and bank statements.
Before you even begin the mortgage process, it’s not a bad idea to run your own credit report. This helps avoid any surprises and can give you time to have any mistakes corrected that might appear on your report (it does happen).
It’s easy to think the pre-approval process is only about making sellers and listing agents happy. The pre-approval may actually save you time and money. It also lets you know where you stand with qualification amounts and whether there’s anything else you need to be doing to improve your credit rating or your debt-to-income ratio. As I mentioned in the previous paragraph, this could mean correcting mistakes on your credit report, paying off small debts like a $500 credit card balance, or increasing the amount of money you have in savings.
Just because a co-worker who makes basically the same amount that you do, qualified for and purchased a $250,000 home, does not automatically mean that will be your price range. What if you qualify for more? Then you are limiting yourself to homes that might not have everything on your wish list. What if you qualify for less? You have just wasted your time (and your Realtor’s), searching in a price range out of your reach. Having to look for a $165,000 home after you have toured some amazing properties in the mid $200s will surely be a disappointment.
Want the name of an outstanding mortgage lender or two so you can begin the home-buying process with a pre-approval? Call us or email us at [email protected] today!
Ursula & Associates is a residential real estate team specializing in Towne Lake/ Woodstock, Cherokee and East Cobb Counties and are the number 1 home sellers in zip code 30189.
Keller Williams Realty Partners – Reach our broker: 678-494-0644