Financing your home - Pre-qualifying, Pre-approval and Financing

Finding a home and buying a home are two very separate things. Buying a home starts with getting your financial house in order. Getting pre-qualified shows sellers that you are a buyer who can qualify for financing and it helps you establish a clear price range for buying a home.

Pre-qualification is not a full mortgage approval, but a basic estimate of what you can afford in a home loan. Pre-qualification is sometimes confused with pre-approval, which is a more comprehensive analysis and commitment of a loan program for a buyer.

Simplify your loan process and get pre-qualified for a home loan. Along with the down payment available to you, the loan amount will determine what price range will work for you. Pre-qualifying helps you identify and resolve any issues you may encounter in your loan application.

A Pre-approval means that a lending institution has verified all information you have furnished and is stating that, barring any complications, they will lend you a specific loan amount to purchase a home. Pre-qualifying for a loan simply means that pending verification of information furnished (it has not been verified on a pre-qualifying letter), the lending institution would consider loaning you a specific amount. Remember - this is a process that you must go through before the purchase of a home can be finalized. Why not make it the first step and save yourself the worry of not knowing whether you can purchase the home once you have found the right one.

A loan officer can be found at any of our offices to guide you in this process and answer any questions you might have at absolutely no obligation. The following is information that most lending institutions require in order to pre-approve you for a loan:

Your Monthly Income. Lenders consider the income of all parties who will be owners of the property. Be prepared to provide an accounting of all income sources.
Your Monthly Debts. Lenders need this information to determine whether or not you can handle the mortgage payment you're applying for. Different mortgage plans consider the payments on any debt that won't be paid off within six months, nine months or a year. It is advisable not to buy a new car just before you apply for a mortgage.
Amount of Your Down Payment. The down payment is paid in cash and is not included as a part of the loan amount. Naturally, the larger the down payment, the smaller your loan. This will also reduce the amount of your monthly payments.

How much you will pay down depends on the cash you have available and the amounts you will need for closing costs and prepaid property taxes and homeowner's insurance. Different mortgage plans have various down payment requirements and can have a range from 0% down on a VA (Veterans Administration) loan to between 3 and 5% down on FHA (Federal Housing Administration) loan to 20% down - the traditional amount for a conventional loan. In addition, special state programs for first-time home buyers may set different sums, which are lower than conventional financing.

If you pay less than 20% down on most loans, you may be asked to protect the lender by carrying private mortgage insurance (PMI). Carrying PMI ensures that the debt is repaid if you default on the loan. This could add approximately an extra half a percent to your loan.

FHA mortgages, in return for their low-down-payment requirements, may also charge for mortgage insurance premiums (MIP).

Additional information you will most likely need:

• Social Security number.
• Residence address past 2 years
• Landlord's address (if applicable).
• Name and address of each employer - last two years.
• Names, addresses, account numbers and balances for all bank accounts.
• Last 3 months bank statements.
• Names, addresses, account numbers, balances and monthly payments for all open loans.
• Addresses of other real estate owned and loan information.
• Your check for the credit report and appraisal fee.
• Year-to-date paystub and last 2 years W2's.
• If self-employed, your last two years tax returns.
• Driver's license (FHA Only).
• Certificate of eligibility Or DD214 (VA loans only)