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    Ask the Expert Series: The Loan Qualification Process

    We continue to connect you with the experts to answer the questions on your mind. Next in our Ask the Expert series of blog posts is an interview with Greg Kingsbury, Loan Consultant with Caliber Funding to discuss what your should expect during the loan qualification process.

    1. What is the difference between pre-approval and pre-qualification?

    The main difference between pre-approval and pre-qualification is credit.  With a standard pre-qualification, a lender will manually review income and the debts disclosed by the borrower.  While the pre-qualification allows a lender to get a good idea of whether or not a borrower would be able to get a loan, it is missing one of the main ingredients….the credit report.  Once a lender has the credit report and credit score, estimates and definitive qualifying numbers can be determined.  Having a credit report also allows a lender to run a scenario through their automated underwriting system to get a more secure answer on levels of approval.  You will need the actual pre-approval to write an offer on a property, and most agents will want this before they start showing you properties. 

    2. When should I get pre-approved? Should I get pre-approved before I find the home I want to purchase?

    You should get approved prior to viewing houses in person with an agent.  There is no harm looking on the internet at homes at the beginning of your search, but before you spend your time as well as your agent’s time, you should have a clear idea of the price range to look.  The pre-approval will allow you and your lender to establish the price range you are most comfortable looking.  The last thing you want to do is view a group of homes out of your price range and then compare everything else to what you first viewed.  It will make for a frustrating home search moving forward because you will want everything you saw in the home that was over the price you should have been looking.  You may also find after talking with your lender that with tax breaks and other programs available you could search in a higher range than you originally were thinking.  Lastly, with inventory at all-time lows, if you find the place of your dreams you need to be ready to act.  You may not be able to get a letter within a few hours if that is when offers are due.

    3. What information & paperwork will I need to provide?

    Most lending institutions need the same information.  We will want to obtain your personal information such as full legal name, date of birth and Social Security numbers of all borrowers.  In addition to that, we will need to know the addresses for all residences lived for at least the previous 2 years in addition to where you have worked for the previous 2 years.  You will also need to provide paperwork to support this.  If you follow the 2-2-2 rule, that should cover everything.  2 years of tax returns with w2s, most recent 2 pay stubs, and most recent 2 months’ worth of bank statements.  Keep in mind that lending institutions will require the entire bank statement with all pages.  You will also be required to document and explain any large deposit within the statements.  Lending institutions are extremely picky when it comes to documenting the source of money used for down payment and closing costs.

    4. Is there a fee for obtaining a pre-approval?  

    There should be no fee for pre-approval.  If you are being charged a fee, you should talk to another institution.  This is your lenders time to win your business.  It is an interview for your lender as much as it is for you.  You are giving a lot of personal information out in order to do this.  Make sure you are comfortable with whom you are talking to.

    5. How much time does it take?

    A standard pre-approval should only take 20-30 minutes.  This can be done over the phone or in person.  Most institutions also allow you to fill out an application online if that is more convenient with your schedule.  This is probably the most important 20-30 minutes of your entire home buying process.  Answer all questions honestly and being forthcoming with any information you feel is important will help ensure a smooth process down the road.  If there is anything you think may have an impact on your approval, now is the time to get it out there.  

    6. What are some of the factors that determine how much I will qualify to borrow?

    There are quite a few factors, but the main 3 are credit, income and assets.  Credit is probably the most important factor.  This is the only factor that can’t be overcome with a co-signer or gift.  The credit report will determine if you are eligible for certain programs and a loan in general. Income would be the next important factor.  The level of income you earn will be used in conjunction with your credit to determine the maximum amount per month you are able to spend. The next important factor would be your assets.  There are many different loan programs available.  Some are meant for large down payments and others are set up for those with little or no down payment.  Having larger down payments can help offset credit issues, or lower income.  All three of these factors go hand in hand with your ability to borrow money. Make sure to inform your lender what payment you are comfortable with.  Don’t necessarily have the lender tell you this is how much you should buy.  Many times, the amount one qualifies for is well above the amount one believes they can afford.  You need to take into consideration how much you want to save, how often you like to vacation and go out to dinner, as well as if you are going to send your kids to private school.  Those factors typically do not play into the approval process.

    If you have additional questions about the loan qualification process or other questions related  to any aspect of the mortgage process, post them here and we’ll get them answered.  For more information about Caliber Funding check out their website.  Please feel free to contact Greg Kingsbury directly at greg.kingsbury@caliberfunding.com or 202-709-5681.

     

     

    2 Responses to “Ask the Expert Series: The Loan Qualification Process”

    1. Ask the Expert: The Loan Qualification Process | Lindsay Reishman Real Estate Says:
      March 20th, 2013 at 6:28 pm

      […] 1. What is the difference between pre-approval and pre-qualification? The main difference… Read the full article… This entry was posted in Featured by Alex DeLorme and Laura Bowman Pimentel. Bookmark the […]

    2. Are You Qualified for a Loan? | The Polaris BD Says:
      May 10th, 2013 at 8:06 am

      […] Ask the Expert Series: The Loan Qualification … – It’s Your Abode […]

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