If you’ve attended a first time homebuyer seminar, the one thing that should’ve stuck with you more than anything is to talk with a lender ASAP. Even if you’re not looking to buy for the next twelve months, do it now. Talking to a lender early in the process makes life so much easier down the road. Why? It’s all about preparation. In order to get the best overall deal on a home, you must also get the best overall interest rate / minimal lender’s cost as possible. Finding out your credit situation, what type of payment you’re qualified for, and what monthly payment you’re comfortable with is VITAL to this whole process. If something needs to be adjusted, like your credit report for instance, early is better.
How long does it take? There are two ways to get pre-approved (pre-approved and pre-qualification technically mean the same thing). The first is where a lender will run your credit and have a discussion with you regarding how much money you make, how long you’ve been employed, as well as a few other questions depending on your credit situation. With the credit report in hand and knowing your income, the loan officer will calculate your debt-to-income ratio. With your credit score, debt-to-income ratio, and employment history, your loan officer will be able to determine whether you COULD be qualified to buy a home and at what price (including taxes, monthly assessments, and private mortgage insurance). This interview will take around 20 minutes and as long as you submitted accurate information, some lenders will pre-approve you at that time.
The second way to get pre-approved is to have this discussion AND bring in all the documents required to obtain an actual loan. These items will include tax returns, W2’s, bank statements, and other items depending on your situation. Although this takes longer, this is the better route. Your loan officer will have all the DOCUMENTED information they need to pre-approve you. Now you have, what StartingPoint Realty calls, a full documented pre-approval. Some lenders will take these documents and bring them in front of an actual underwriter. That’s even better, but that could take over a week.
Which method is better for you? If you’re over 8 months away from purchasing, the 20 minute phone call is a good starting point (pardon the pun) for you. Here it becomes more of a consultation to get you ready in order to obtain a documented pre-approval. For those that are within a few months of purchasing, take the time to bring in all your documents to a loan officer. You’ll have to do it at some point, you might as well get it done sooner than later.