The Low on Pre-Quals
SOoOO… you need to get PRE-QUALIFIED?
A loan pre-qualification is a confirmation of your credit, income, and assets. It is the INITIAL STEP for the home buying process and for a loan pre-approval.
It is important to get pre-qualified for a mortgage BEFORE you start your home search because it will help you identify any obstacles to obtaining a loan approval (i.e., having too much debt or a low credit score) and because it gives you and your realtor a price range to search within, rather than searching through homes that may under or overwhelm you! Then, when you are ready to make an offer on a home, a loan pre-qualification or pre-approval letter is always attached to your offer. This gives the seller confidence in your offer and in your ability to buy their home.
ULTIMATELY, loan pre-qualification and loan pre-approval allow for a more efficient home search, a stronger offer, and a smoother closing transaction.
Are we there yet?
An initial loan pre-qualification typically takes 24-48 hours to receive. A full and in-depth credit/income loan pre-approval typically takes 5-7 business days.
What do you want from me?
The document requirements for a mortgage loan pre-qualification vary by lender and by individual circumstances, but typically, you will need to show PROOF OF INCOME (i.e., pay stubs, tax returns, or W2s) and PROOF OF FUNDS (i.e., bank statements.)
WAIT WHAT? Proof of income?
A 2-year work history is primarily needed when claiming commission, overtime, and bonuses as income. However, a 2-year work history is not always needed based on a client’s career. For example, a person who recently graduating college with a BA in Education and is starting their teaching career would not require a 2-year work history. Someone who has had a stable work history at a salary-paying job would also not need to show a 2-year work history.
HUH? Proof of Funds?
There are 4 loan types: VA (Veterans), USDA (Rural designated area), Conventional and FHA. VA and USDS loans require $0 down. A conventional loan requires as little as 3% down payment and an FHA loan requires a minimum 3.5% down payment. It is also reasonable to be prepared for closing costs that can vary from 2-3% of the home purchase price. IMPORTANTLY, depending on your eligibility, there are programs that give 3-6% of the loan amount in assistance to cover your down payment and/or closing costs. If you are not eligible for these programs, you will need proof of funds to be pre-approved for a mortgage loan.
You’re checking my credit?
If you want to get pre-qualified or pre-approved for a mortgage, an IDEAL credit score is 620. A credit score of 620 allows for preferred pricing and is accepted by most down payment assistance programs. Credit scores as low as 580 can STILL be approved for mortgage loans, however, they are often not accepted by down payment assistance programs.
…YOU ARE CHECKING MY CREDIT?
An initial pre-qualification inquiry is a hard inquiry on your credit. Despite this, credit systems can determine that you are applying for a mortgage loan, rather than inquiring for more debt such as credit cards, and it DOES NOT affect your credit profile in the same way! Applying for a mortgage loan is not known to be high-risk behavior in regards to your credit. It is also important to remember that each pre-qualification letter and pre-approval letter is good for 120 days. Your credit will only be ran ONE time during those 120 days.
Written by Bernaddette Schepperly – Bonalife Homes, with the assistance of a trusted lender, Tyler Eads – Guild Mortgage.
Bernaddette Schepperly, Real Estate Buyer Specialist