A pre-qualification is an estimate of how much you can borrow based on your financial information and helps you decide if you’re ready to apply for a mortgage loan. And it all starts with a conversation with a loan officer.
Whether it’s on the phone or face-to-face, this conversation is the beginning of the process to get a loan. There are no fees to pay and no documents to complete to have this discussion. No application is completed at this stage.
The loan officer won’t ask you for proof of income or copies of your bills, but you should have that information gathered before you talk. Knowing your income and debt will help the loan officer calculate a debt-to-income ratio and get an idea of whether or not there are loan options available for you. It helps figure out how much of your budget is available for a mortgage payment.
A pre-qualification is not a guarantee of a loan, but it does help you and your loan officer identify what your next steps are.
If you’re serious about continuing with the process, your loan officer will pull your credit to give you a conditional approval letter.
In order to pull credit, your loan officer will need to know your current mailing address, your current property address, any other addresses you’ve had in the past few years, your full name, your social security number, and your date of birth.
Again, no actual paperwork is collected at this stage. Your loan officer may ask to see your driver’s license to verify identity or ask to see your social security card to verify the social security number. They might ask for verification of employment, like a pay stub at this stage as well. A mortgage banker usually won’t pull credit without the intent to provide a conditional approval letter.
Your credit score helps further identify what loan options are available for you as well as the kind of interest rate you may be able to get. If credit improvement is needed before you can qualify for a loan, your loan officer will be honest with you and give you advice on what you can do to get your credit on track so that you can get a loan.
Your loan officer is completing a series of “if/then” type scenarios to help narrow down your options. If you’re in the military, then you may be interested in a VA loan. If your credit score is low, then you may need to work on that or you may qualify for a FHA loan.
Because your loan officer sees pulling your credit as a confident step in the direction of getting a loan, your answers to the questions provide the foundation for your application. The loan officer will compile the information you’ve given so far to make it easier for you to complete the application process.
As soon as you begin the application process, pre-qualification ends and your loan officer starts on the approval process which requires documentation from you to support the information on your application.
Your pre-qualification conversation is much like completing an online mortgage calculator. Before you begin the process, take a few moments to gather your pay stubs, earnings and leave statement (if you’re military), profit and loss statement (if self-employed), debt information, asset information, and any other information that will help give your loan officer an overall picture of your financial situation.
It’s easy to get these two confused. Some lenders don’t say “pre-approval” for that reason and call the next stage after pre-qualification “conditional approval” instead. As mentioned above, pre-qualification is not an approval and helps you and your loan officer determine if there may be mortgage options for you. The conditional approval means that you’re approved by your mortgage banker to start the application process, pending certain conditions being met. These are usually conditions they know an underwriter will need to clear before sending your file to closing. For example, the underwriter may need a copy of your homeowner’s insurance policy or explanation of any large deposits into your bank account.
Pre-qualification is a great way to transition from thinking about buying a house to getting the loan you need to buy a house.