Hey Y’all! So you want to buy a home? House, condo, townhome, whatever it may be this is a huge financial milestone. Congrats! How does one get ready for this? One of the first things I’d recommend is getting preapproved for a loan.
Before you start shopping around and getting hearts set on a home, you need to start with a lending officer. Let your bank’s lending officer help you to set a budget before you find that beautiful farm home that looks like Chip & Joanna made for you (Fixer Upper Fans – I’m talking to you!). If I may, I’ll break this down into the main points.
Preemptive Note: There is a difference between prequalification, and preapproval.
When I bought my house we did all of the above. First we got prequalified. This requires minimal information compared to what will be needed to become approved for your home loan. Prequalifying for a loan means that your lender had checked minimal financial data and gives a rough estimate on what you could borrow. This can very much change when you are preapproved – talk to your loan officer! A preapproval gives an estimate of a loan amount you could qualify for and gives a foundation idea of what price you could purchase a home at. When you are preapproved you have completed a mortgage application, credit has been checked, and an initial underwriting process has occurred.
When the pre approval process begins you’ll be filling out your mortgage application. That is at least the case with our lender. There were a ton of documents to upload that we were digging out. I should have read ahead of time to know what we were in for.
- The first thing you should really have a grasp on is your credit score. Your credit score will be playing a huge role in borrowing. It helps the lender determine the risk of lending to you and what interest rate they will charge. If you need to read up on credit scores, start here.
- Income. You will need to provide paystubs, W-2s, and bank statements. Any large deposits to your account will need to be explained in a letter and signed. If you moved accounts recently, you’ll need to explain that as well. We had our personal banking institution write a letter to our lender for us as we ran into this issue.
- Debt. What debt do you owe? Car payment? Current mortgage? Student debt? All debts need to be disclosed. They’ll want to know how much you owe, what your monthly payments are, and the interest rates.
- Cash & Investments. Your lending officer will question your cash that you have and any assets. You’ll need to fully disclose your investments, 401(k), IRA, life insurance amounts, and any other asset you may have.
Each lending institution may work a bit differently. I worked with an advisor over the phone and the bank’s online portal. This made sharing documents very easy. Once you are preapproved and you find your home, things start moving FAST. You’ve done yourself a huge favor and hopefully now at least know what information may be asked of you!