Prepare to Qualify

Mortgages help soften the large initial expense of buying a home and allow you to pay for your new house over time. But qualifying and being approved for a mortgage is a complex process that requires careful thought and planning. Though qualifying for a mortgage may seem daunting at first, it’s worth planning out ahead of time — sometimes doing so can increase your chances of getting the house you want. As you search for mortgages, pre-approval and loans, make sure to schedule your applications so that even if your credit is run multiple times (which is likely if you’re applying to a variety of lenders) they will all occur in one month, which will help minimize any impact on your credit score.

Pre-Approval
You can potentially increase your financial security while showing the seller that you’re able to follow through with payments. To do that, you need to be pre-approved for a mortgage. Pre-approval is essentially proof that a lender is willing to loan you money. Being pre-approved for a mortgage gives both you and the seller confidence that you’ll be able to pay for the home, thereby increasing your purchasing power.

The first step is pre-qualifying for a mortgage. Before a financial institution will pre-qualify you, it will evaluate your finances, including your income, debt and assets to give you an idea of the mortgage amount you can expect to receive. Pre-qualification is easier than it may sound because it can be done over the phone or on the Internet, usually with no cost involved. Pre-qualifying for a mortgage is a way to initiate a discussion about your mortgage options and what you can afford.

Pre-approval involves a more thorough verification of your finances to make sure that you can afford to make home mortgage payments. Here are some of the documents you’ll be asked to provide:

Personal information documentation, such as your driver’s license, Social Security number, marital certificate if applicable, contact information and address.

Employment information, including where you have worked and for how long, as well as recent paycheck stubs and W-2 income tax forms for the last two years.

Your total monthly expenses, which includes bills you pay regularly.

Your overall financial condition, which includes all of your bank accounts, investment accounts, assets (stocks, 401(k)s, IRAs, bonds, cash) and all of your liabilities (any debts such as credit card balances, student loans or car loans).

When it comes time to bid on a property, a pre-approval letter from your lender can be shown to sellers to confirm that you already have financial backing and the ability to go through with the sale, which makes you a much more attractive buyer to sellers. However, be aware that pre-approval is not an absolute commitment from a bank to issue you a home loan.