When you're interested in buying a home, while it might be tempting to go out looking at homes and attending open houses, home buying should actually begin at with a lender. The first step when you're getting started with a mortgage would be to get a pre-approval. In mortgage lending, people can go to a lender who will check their credit and verify income. Then, they can show that they would qualify to get a loan of a certain amount. It will help you as a home buyer find a house that's in your budget which will be your loan amount. It shows that you pre-qualify for a mortgage which looks great to the people selling the home or the real estate agent you will be buying the home through.
To get the ball rolling first collect all of the information you'll need before you make an appointment with a lender of your preferance, such as a bank.
Here are the items you'll need to gather:
1. Proof of Income
- pay stubs
- bank statements
- PayPal statements
- Tax forms from recent years
2. Proof of Employment
Lenders will often call your employer to verify you work there and to verify your salary. Self-employed clients will usually have to provide additional information and paperwork.
2. Proof of Assets
This includes present bank statements and investment account statements to show that you have money for the down payment and closing costs which will depend on the amount of the home and the percentage the loan requires you to pay. You will also need your current credit score, debt-to-income ratio.
3. Proof of Good Credit
Most lenders will require you to have a credit score of 620 or above to approve you for a loan. If you have a credit score that's above 760, you can often qualify for lower interest rates. If you have a lower credit score of 580 or lower, you will usually have to make a more significant down payment. Lenders will also help customers with low credit scores find ways to work on improving their own credit scores so they can get the best rates.
5. Personal Documentation
- a valid driver's license
- a Social Security number
Once you have gathered all of your documents and pieces of information, you can start to look for lenders in your area and choose the one that's best for you. If you are loyal to the bank you already have accounts with, you can start out with them first and see what they can offer you for a mortgage. But don't stop there, just because you already have an account there, doesn't mean they will provide you with the best option. It pays to shop around first and compare the loan options, interest rates and down payment options before you choose your lender. There are other options for lenders than just banks like credit unions and monoline lenders.
Then, once you've found the top lenders in your list, you can see if you qualify for pre-approval. The lenders will give you an official letter of pre-approval which shows sellers that you’re a serious buyer. It also shows that you are capable of making a good offer on the home. Getting the letter from a particular lender doesn't mean that you have to borrow from that specific lender though. So when you're ready to make your offer on the house, you can choose the lender of your preference. Doing your research and getting prepared with your proper documents will save you a lot of frustration when you're actually in the process of looking for the best lender. And getting pre-approved can help you put your best foot forward when you're serious about buying a home.