Unless you are planning to buy a home with full cash payment, it is important to get pre-qualified for a home loan. There are many good mortgage plans that you can apply for, the interest rate is depending on your credit score, the higher the score the better deal you can get. If you are planning to buy a home, it is safer to get a pre-qualified home loan before you sign a purchase confirmation document. Here the five simple steps to pre-qualify for the loan:
1. Search for lenders
If you have friends or families who have purchased a house before, and they are happy with their mortgage plan, you get a referral from them. If not, you may have to spend some times and efforts to search around, you can do it online as well. Get the detail information, including the best interest rate, the fees and the requirements needed to qualify for the loan. Compare them apple to apple and identify the best loan before making your decision. In order to play safe, don't nil down to one loan; try to pre-qualify for a few home loans and then choose the one with the best offer.
2. Provide the necessary information
After you have short-listed a few home loans, you need to provide the necessary information for lenders to assess your qualifications in meeting the application requirements. This information includes your gross monthly salary, total monthly payments on credit cards, car, children's education, etc. Based on your income and expenses requirements, the lenders will assess your qualifications before they approve any pre-qualified home loan to you.
3. Get your debt-to-income ratio
The lenders will add all your monthly payments and other debt payments and compile against your total income to generate a debt-to-income ratio. You won't be able to get a pre-qualified home loan if the ratio is too high because the high ratio indicates you are using most of your income for debt payment. The ideal debt-to-income ratio for the best interest rate home loan should be under 36, the lower the better.
4. Authorize lenders to pull your credit report
Lenders use the score reported in your credit report to access their risk of lending to you based on several factors, including your present job, your current financial status, debt payment status, etc. In order to speed up the approval process, you need to give your lender authorization to pull your credit report from credit bureau. If you have credit score above 680, you are at the best position to secure the best home loan with lowest interest rate.
5. Get a pre-qualification letter from the lender
Although you won't be guaranteed for a home loan even though you have been pre-qualified for a home loan, but it shows you are financially meeting the loan application requirements and you stay a good chance to be offered with a loan. Therefore, ensure that the lender prepares a letter of pre-qualification for you once you are pre-qualified.
Summary
You are advised to get pre-qualified for a home loan before buying your dreamed home. This is to ensure you stay at the best chance to secure a loan to buy the house. The 5 steps above are the basic guide for you to get pre-qualified for the loan.
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