Shopping for home financing from different lenders can help you find a mortgage that’s right for you. To start getting to know a specific lender, you can ask for a pre-qualification.
A pre-qualification meeting is an informal discussion with a lender about how much you qualify for in a mortgage. It doesn’t involve completing an application and should not involve any application fees.
Bring your financial documents with you as a reference point. To get started on an initial estimate, the mortgage loan officer will review your financial situation. Your past two years’ tax returns can give the mortgage officer a good sense of your income, especially if your income is cyclical or if you have sources of income other than employment. You can also bring along your most recent pay stub, a Verification of Employment, records of your current debts, and records of your assets—particularly the assets that you plan to use for a down payment and closing costs.
Ask about eligibility for special housing programs. This is a good time to find out whether the lender participates in a USDA or VA home loan program, or any other housing programs that they can recommend.
Be prepared to discuss your finances. In order to determine how much of a mortgage the lender will be willing to approve, the mortgage loan officer will need to understand your debt, assets, and income. For instance, he or she may ask you questions about the source of your assets, to ensure that your down payment is not actually an informal loan. (If you recently received a monetary gift for your down payment, you can bring along a letter from the contributor stating that it is a gift.) There may be questions about your debts, because your total debts are a factor in determining a sustainable mortgage amount to lend to you. These questions will help the lender arrive at a more accurate prequalification amount.
Ask for an estimate of fees, interest rates, points, and closing costs. It’s important to understand the various fees and costs involved in a mortgage, and a potential lender can answer your questions. Estimates can also help you compare lenders. We’ll discuss these topics further in next week’s column.
Consider the customer service you receive. Your mortgage loan officer will be with you through the closing process, which can be time-sensitive and demanding. You want to be sure that you are working with a loan officer who is attentive, responsive, efficient, and makes you feel comfortable with the mortgage process.
Submitting the Application. Once you choose a lender, it’s time to submit a formal application. This will require more financial documents from you to verify your income, assets, debt, and employment history, along with application fees and a formal credit check.
When you submit a formal application, but haven’t started looking at homes with a real estate agent, you can request a pre-approval letter from the financial institution. This letter states the amount the financial institution is willing to lend to you, as long as the appraisal on the future home meets the lender’s requirements, and other lender conditions are fulfilled.
If the lender approves your application and provides a letter for you, you can use this as a negotiating tool when you look at homes. Because you have taken the step of having an application approved, your real estate agent and sellers can have more confidence in your purchasing power, and be more willing work with you to reach a deal for a home sale.
There will be more to expect during the closing process, but at this point you are well on your way.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 19 years experience in retail banking and with financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com