Your first interview with each lender you shop with is very important. It is there that the lender will gather essential information to help you find the best loan for your needs.
The process varies from lender to lender and situation to situation, which is one reason shopping around is so important.
Many times, potential home buyers seek prequalification after they have already selected a home and signed a real estate purchase agreement. In this case, the lender’s job is to find the best loan to meet your situation.
Other times, applicants may approach lenders even before shopping for a home to find out how much they can afford to borrow and what the top of their price range of home may be.
In either event, some type of prequalification is typically done in the first interview. At this time, the lender does various calculations based on information you give them about your income, debts, and assets. These calculations help determine whether you can afford the loan you would like and/or how much you can afford to borrow. At this stage, the lender may also counsel you on the mortgage application process and steps to getting a mortgage at their company.
You should use this information to revisit your budget to see what, if any, impact this size monthly payment and any possible adjustment in payment will have on your total budget plan.
Prequalification occurs before the formal application for credit is signed and submitted. At this time, lenders do not verify or check to be sure the information you gave them is true, and they do not necessarily run a credit check. Lenders are not committed to make a loan for you at this time. It is strictly an estimate of the amount you may qualify to borrow.
In a pre-approval, the lender does verify or check out the accuracy of the information you have provided. For example, they will contact your employer to verify your employment dates and how much you make. The lender also checks your credit at this time. If your credit is approved and the information you have provided checks out, the lender will give you a pre-approval letter for a loan amount. You are most of the way to buying a home—provided you find one you like. In the case of a broker, a pre-approval may come from the loan actually approved by an investor subject to all verifications.
The pre-approval letter and status is helpful because you can use it while you are shopping for a home. Providing a copy of your pre-approval letter to your real estate professional will show that you are serious about buying a home, that your credit has been checked, and that you have a lender you are working with. It also takes away some of the fear of the unknown as you are searching for your home. The pre-approval is specific to this lender, but can form the basis for shopping with others lenders.
Knowing that you are pre-approved can help you relax and enjoy searching for your dream home!