One of the most critical parts of buying a new home is obtaining mortgage financing. Smart buyers start the buying process early by getting pre-qualified for a mortgage by a licensed mortgage loan officer. Here is five reasons why getting pre-qualified is important:
1) Knowledge is Power
The mortgage world has changed drastically in the past few years. Even if you purchased beforehand, you might not recognize the mortgage process today. The amount of documentation need, verifications required and steps has increase dramatically. Getting pre-qualified prior to shopping for your new home, will allow you to learn what the road to home ownership requires in terms of obtaining financing. Understanding the new mortgage requirements will help you avoid any pitfalls later, when you actually receive a ratified contract.
2) Set Realistic Expectation
One of the worst feelings is finding the perfect home and then learning you can’t qualify for the financing needed to buy that house. By getting pre-qualified by a loan officer before house shopping, you can learn the maximum sales price you qualify for. This will help your realtor narrow down the potential houses that they show you. If you only qualify for a $500,000 house, why waste your time seeing houses priced over $700,000.
Similarly, if you want to buy more than you qualify for, your loan officer can help you put together a plan to get to a higher price point. Maybe saving more for your down payment, paying off installment debt or improving your credit. Getting pre-qualified for a mortgage can make shopping for homes much easier.
3) Fix any errors on credit report
According to a Federal Trade Commission study, they found that “one in five consumers had an error on at least one of their three credit reports.” Errors on credit reports can affect your credit score and costs you thousands of dollars more a year in mortgage interest payments. By reviewing your credit report earlier in the buying process, you may have time to correct any errors found on your credit report. Sometimes it can take up to 90 days for error to be removed from your credit. The earlier that you know about an error, the quicker you can take actions to correct it.
4) Gather Paperwork Early
The amount of paperwork needed to get a mortgage is substantial: paystubs, multiple years of W2s and tax returns, bank statements etc. By collecting and sending your loan officer the documentation needed for loan approval, you will be helping yourself in two ways.
• First, you give yourself time to find missing documentation. For instance, if you can’t find your 2012 Federal Tax Return. The IRS can send you a copy, but it takes 6-8 weeks. With this information, you can plan when is best to close on your new home.
• Second, by sending your loan officer documentation early, they can review the documentation and point out any possible problems that they foresee and what steps need to be taken to avoid those problems. In addition, having more documentation upfront allows your file to move into underwriting faster once you get under contract.
As a reminder, providing documentation is not a requirement to of getting pre-qualified.
5) More Attractive to Sellers
Adding a pre-qualification letter to your contract offer makes you more attractive to sellers. A pre-qualification letter signifies that you can get mortgage financing to purchase the home you are bidding on. This gives the sellers a little more confidence that the transaction will settle if they accept your offer. In addition, contract offers presented without pre-qualifications are typically are passed over for ones with pre-qualification letters. Do you want your dream house to go to someone else just because you didn’t get pre-qualified?