How do I get prequalified for a loan?
The first task to take care of, even before you start looking at
houses, is to find what price home you can afford to buy. Lender prequalification involves a brief, no-obligation meeting with a loan agent or mortgage broker to determine what size loan a lender is likely to give you. This loan amount, plus the cash you have for a down payment and closing costs, will determine how much house you can afford.
Make an appointment for a prequalification interview and be prepared to discuss the intimate details of your financial situation. Take information with you about your income, length of time on the job, assets and debts.
Be completely candid with the loan agent. For example, let him or her know where you are getting the money for your down payment, if you don't have the cash sitting in your savings account. Lenders do allow buyers to accept money gifts from parents, and loans from friends, for part of their down payment but restrictions apply.
Lenders have become sticklers about good credit, so ask the loan agent to run a credit check on you. This should cost about $20, though you can get a credit report showing any problems with your credit for free.
You might be inclined to wait until you're in contract to buy a home to do this. But it's better to know in advance if there's anything on your credit record that could keep you from being approved for a loan, so take care of this right away. (Any fee you pay for the credit check may be refunded at closing if that lender ends up with your loan.) Your loan agent can tell you what to do to clear up a messy credit report, or can direct you to a lender who might be willing to give you a loan if you find that your credit history has significant defects.
FIRST-TIME TIP: Ask your loan agent or broker to write you a letter indicating that you have been prequalified for a loan. When you make an offer to buy a home, your offer will carry more credibility with a seller if it's accompanied by a letter from a lender or loan broker indicating that you're likely to be approved for the loan you'll need.
This can really work in your favor if there are other buyers %J bidding against you for the house.
Some buyers are reluctant to have the prequalification letter specify the maximum loan amount they can afford because this information might be used by the seller to justify a counteroffer at a higher price. If this is a concern, ask the lender to be prepared to write you a letter tailored to the specific offer you're -- making.
THE CLOSING: Some lenders will actually pre-approve you for a loan, which is even better than prequalification.
In a very competitive market pre-approval can really give you an edge over other buyers. Pre-approval will also work in your favor if your ability to qualify for a loan is questionable for any reason. For instance, if you've been on the job less than two years or you went through a bankruptcy within the last seven years, a letter of pre-approval may alleviate any concerns a seller might have about accepting your offer.
Dian Hymer's column is syndicated through Inman New Features. Send questions and comments care of Inman News Features, 5335 College Avenue, No. 25, Oakland, Calif. 94618.