Buying A Home:
Pre-qualified or Pre-approved?
Finding a
home begins with a trip to a mortgagor. Most
sellers will want to know if you're a qualified
buyer before they enter into contract
negotiations. You'll at least need a pre-qualification
statement from a mortgagor, but you'll be in a
stronger negotiating position if you get pre-approved
for a loan.
"Pre-qualification"
means that you spend a few minutes on the phone
with a lender who asks you a few questions. Based
on the answers, the lender pronounces you "pre-qualified"
and issues a certificate that you can show to a
seller. Experienced seller's agents are aware
that such certificates are worthless, and here's
why - none of the information has been verified!
Oftentimes
unknown problems surface. Some of the problems
I've seen include recorded judgments, child
support payments due, glitches on the credit
report due to any number of reasons both
accurately and inaccurately, down payments that
have not been in the clients' bank account long
enough, etc.
So the
way to make a strong offer today is to get pre-approved.
An
approval means that a lender has reviewed your
credit history, verified your assets and
employment, and has approved your loan before you
have found a home to purchase. As long as the
home appraises for at least the purchase price,
the loan should close.
Getting
approved also gives you an advantage over other
buyers. Your firm approval makes it easier for
you to negotiate on the price of a home, than a
person who is not approved or is pre-qualified.
It's a negotiating advantage I recommend to all
my clients.
10 Things
Your Lender Will Need From You:
- W-2
forms or business tax return forms if you’re
self-employed for the last two or three
years for every person signing the loan.
- Copies
of one or more months of pay stubs from
every person signing the loan.
- Copies
of two to four months of bank or credit
union statements for both checking and
savings accounts.
- Copies
of personal tax forms for the last two to
three years.
- Copies
of brokerage account statements for two
to four months, as well as a list of any
other major assets of value, e.g., a
boat, RV, or stocks or bonds not held in
a brokerage account.
- Copies
of your most recent 401(k) or other
retirement account statement.
- Documentation
to verify additional income, such as
child support, pension, etc.
- Account
numbers of all your credit cards and the
amounts of any outstanding balances.
- Lender,
loan number, and amount owed on other
installment loans—student loans, car
loans, etc.
- Addresses
where you lived for the last five to
seven years, with names of landlords, if
appropriate
Generally,
a couple of blemishes on a credit report will
make you a good credit risk and could qualify you
for the lowest interest rates. If you have more
than a couple of blemishes on your report, sub-prime
lenders may still provide you with a loan, but
you may just have to pay a higher interest rate
and fees.
Next: Finding a Home
or
Return to Buying/Selling
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