One of the most important parts to buying a home is securing financing, aka obtaining a mortgage. A mortgage is a loan that a bank or lender gives a potential buyer to help purchase a new home. Going into the process with an understanding of the most frequently asked questions regarding mortgages can greatly reduce the confusion that comes with obtaining a mortgage.
1. How do I start the process?
The first step to getting a mortgage is to find a mortgage lender or bank. You can do that by doing some research online & asking friends or family for recommendations. It's suggested that when you are looking for a lender, you discuss options with more than one, just so you can ensure you're comfortable with your decision.
Here at Starr Real Estate, we recommend our friends at Ruoff Home Mortgage as a great starting place. They have tons of useful information on their website and we've had a lot of buyers satisfied with the service they've received through Ruoff.
2. What documentation is required?
Although the documentation required to get a mortgage will vary from buyer to buyer, the most common documentation you will need is: ss card, drivers license, pay stubs, past two years w-2's, bank statements, and asset statements (ie: savings acct, CD's, 401(k)s & IRAs). Your mortgage lender will advise you on the exact documents you will need.
3. What is the difference between a pre-qualification & a pre-approval?
Many buyers believe that a pre-qualification is the same as a pre-approval and that is actually the furthest from the truth. To prequalify you for a mortgage, a lender runs a quick check of your income and assets. Many real estate brokers and home sellers will require you to have this done before showing you a home or considering your offer.
A pre-qualification doesn't necessarily mean the bank is ready to hand over a loan to you, but it is a great start. Following the pre-qualification, will be the mortgage pre-approval. Getting pre-approved is a lengthier process, where the lender take a deep dive into your financial and credit history. The lender will also want to take a look at your debt and see how timely you are at making payments. If you have a lot of debt, or have not been sending in your payments regularly, you may want to improve those situations before you go mortgage hunting- this will improve your credit score & help you secure a loan rate & terms.
Pre-approval is better than a mortgage pre-qualification for these important reasons: it helps beat out competition in multiple offer scenario & gives "peace of mind" to a seller when submitting an offer that the mortgage has already been pre-approved for.