If you’re a first-time home buyer and need to know where to begin with the process of qualifying for a loan, then you’ve come to the right place!
Before you get into the actual qualification process, there are two matters you need to answer: checking your credit score and evaluating your financial situation.
Your credit score, also known as your FICO score, tells lenders whether you are a worth taking a risk on. With a low FICO score, your home loan application could be rejected. Even if that isn’t the case and your application is accepted, you may be required to make a larger down payment or pay a higher interest rate on the loan. So before you consider applying for a home loan, be sure to do your own due diligence and check your current credit score.
The other matter of concern before starting the loan approval process is understanding your own financial situation. Take the time to fully assess your current monthly expenses, debt, and savings that could be used towards a down payment. If the numbers don’t add up the way you need them to, you may want to reconsider applying for a loan. If you do the math and are happy with the results, then you are now ready to start the approval process, starting with getting pre-qualified.
Pre-qualification is the first step to getting a home mortgage loan. Getting a pre-qualification letter is straight-forward; you simply fill out an application with your lender stating your financial situation, including your income, debt and assets. The lender runs a credit report and evaluates this info to provide a rough figure of the mortgage amount for which you might qualify, and then follows up by going over your mortgage options. At this point you can begin looking at homes and enter into a purchase and sale agreement once you’ve found the home you believe is right for you.
The approval process, which is far more involved than pre-qualification, does a better job of qualifying you for a loan, once you’ve identified a home you want to buy and have entered into a purchase and sale agreement. With approval, you give your lender the OK to perform an extensive research into your financial history and prove them with all income and asset documentation, along with the purchase and sale agreement for the home you want to buy. Your lender will also double-check your income and credit rating to make sure neither has changed during the course of your search. The lender will then tell you the precise amount that it is willing to loan to you and generally, as long as your pre-qualification was accurate and checks out when scrutinized, the approval should grant you a loan amount very similar to what was originally discussed.
At this point you should be able to get a loan commitment stating that the bank is certain it will lend you the amount needed to purchase your home. This is the final step of the qualification process and now all that is left is to get the loan itself.
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