By Dian Hymer
Before you start seriously looking at homes to buy, it's a good idea to get pre-qualified for a mortgage. Then you'll know how much you can afford. After that, if you decide that you're really serious about buying a home, you should get pre-approved for the mortgage you'll need to complete the purchase.
Pre-qualification can be accomplished by simply talking to a mortgage broker or lender. You'll need to provide information about your income, your assets and your debts. Or, if you prefer, you can use the Internet to find out what size mortgage you're likely to qualify for. Use a search engine like Excite.com or Yahoo.com to search for mortgages. When you find a home mortgage site select the option that allows you to pre-qualify yourself.
Pre-qualification gives you a rough estimate of what you can afford. In order to know definitely what you can afford, you'll need to get pre-approved for a mortgage. This involves a more involved process, but one of the benefits is that most lenders will issue a letter of pre-approval when you're financial documentation is approved. This comes in handy when you're negotiating a home purchase, particularly if you're competing with other buyers. A pre-approval letter should remove any concerns the sellers might have about your financial ability. Also, if you're pre-approved you can usually close more quickly than a buyer who isn't pre-approved.
How much house you can afford to buy depends on your income, your debts, your credit history and the amount of cash you have available for a down payment and closing costs. To get pre-approved, you'll need to give your lender or mortgage broker a residential loan application, verification of your employment, proof you have the down payment money and authorization to check your credit.
In addition, the lender will want the following: W-2's for the last 2 years and your most recent monthly pay stub if you're salaried; tax returns for the last 2 years and a year-to-date profit and loss statement if you're self-employed or if you receive commission income; copies of the last 3 monthly statements from financial institutions that verify your source of down payment and cash reserves; and copies of payment coupons on any outstanding loans like an auto loan or home mortgage.
If you receive rental income, social security or pension income, alimony or child support income or income from a note, you'll need to provide documentation to verify this. If you're not a U.S. citizen, you'll need to provide copies of the front and back of your green card.
First Time Tip: The amount of paperwork required to qualify for a mortgage is overwhelming to most home buyers. To simplify the process, some mortgage brokers and lenders will complete the loan application for you using information you provide to them either in person or over the phone.
Loan approval for some mortgages requires less paperwork. For example, minimal documentation is needed to qualify for a no-income verifier (NIV) mortgage (also called a stated income mortgage). You need good credit to be approved for one of these loans. But basically the lender takes your word in lieu of a formal income verification.
Most NIV mortgages require a 20 percent cash down payment. And the borrower is usually charged about a 1/4 percent higher interest rate on the loan. Home mortgages with the most competitive interest rates often require the most documentation.
The Closing: Before final loan approval, the lender's underwriters will need to review the purchase agreement, a title report and a property appraisal.
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