Getting your home loan pre-qualified is an absolutely critical start to your home shopping experience. Without the money set in place, you should not be out looking for homes. I compare this to going shopping for a new handbag or pair of dress shoes, with no money. Not really any fun!
The stress of going shopping without your loan in place seems nominal at first, but as the shopping and house hunting continues your stress level will increase with worry and doubt. So let’s take a look at some of the data you should gather and questions you should be prepared for.
Employment history and income are probably the most critical piece of information we require initially; since your income determines if you can carry your new home loan debt plus your existing monthly recurring payments. So be sure and have your last two years history (dates, title, company name, etc) handy so when you are asked, you can provide it. Remember, that we are looking for stability or if you have moved jobs an explanation as to why (such as education earned, moved for a pay raise, etc). Income is always asked of you in a GROSS monthly income format, NOT after taxes. We will take taxes into account later on in the pre-qualification process.
Whether you have your income before taxes in a hourly, weekly, biweekly or annual figure makes no difference; just have the information with you. The easiest way is just to have a recent pay stub with you. It really helps too, if you can provide the loan officer with the Year To Date figure that shows on your stub, it helps us to see if your year to date earnings make sense with your hourly, weekly, etc pay. Also have your tax returns and W2’s with you, and a good loan officer would ask you for W2 figures for the most recent year. How much you made last year, compared to this year shows stability and consistency. A drop in income, poses a problem and we must use the lower amount (to be conservative).
Having everyone’s information who will be on the loan handy, with full legal name; social security numbers; date of birth information, and last 2 year address information is also required in order for for us to pull a valid credit report. A credit report only takes a few minutes to pull, but without the correct and proper information an invalid credit report or data will be pulled. So accuracy of this information is critical to the accuracy of your loan pre-qualification. If there are debts that you owe, that are not on the credit report NOW is the time to disclose them. A future surprise does you no good whatsoever, and just causes potential devastating results. A pay on the lot car payment for example, could cause your APPROVED loan to rapidly changed to a DECLINE due to excessive debts. So please disclose everything. The debts that don’t count are items such as: utilities, insurance, cell phone, etc. Some loan programs like the VA Veterans Administration program however, does count daycare so definitely be sure this is discussed up front.
The last major bit of information to discuss and disclose are critical pieces of information such as if you pay child support (or receive it). Child support income is only considered income to be used for qualifying IF the income is consistent and you receive timely each month. If the payor of the support isn’t always timely or not paying at all, the income isn’t a factor whatsoever. Three years of continuance of this sort of income is a requirement, so if your child is 16 for whom you receive support for; this isn’t counted as income if your decree shows the support ends when your child turns 18. When someone pays child support, this is counted as a debt against you no matter if there is 2 years left to pay, or one month.
Once all this data is compiled and your credit run, reviewed and analyzed; a good loan officer will know how much of a home and payment you can handle. Use caution here however, we can normally qualify you for more than what you could reasonably expect to pay out each month. A home loan qualification doesn’t consider expenses such as daycare costs, parent care, larger than average utility bills and the like. YOU are the best person to judge your BUDGET! If you need help with your budget plan, a good loan officer will know how to guide you with information and suggestions.
Here are the items that you will need once your pre-qualification is complete (and take to your consultation appointment):
- 2 years W2’s and tax returns, all pages and all schedules. If self employed, your company returns are also needed for the same timeframes.
- 2 months bank statements, all pages for all accounts (the more assets you have the better, so be sure you have all the accounts rounded up).
- 30 days pay stubs
- Valid ID and SS Card for you and other borrowers on the loan (including spouse whether they are on the loan or not).
- Child support agreement, divorce decree, bankruptcy filing and discharge paperwork, all pages, as applicable. If you are currently enrolled in Consumer Credit Counseling, you will need your initial agreement and most recent statement.
- Retirement statement of earnings, annual awards letters for social security, retirement, pension or military income.
- VA Only: DD214 or statement of service.
- Credit report fee, which most lenders charge from $50-75 for up front. This is to cover the cost of the Residential Mortgage Credit Report which isn’t the same as you pulling your own credit report from the credit agencies directly.
- Landlord information (including name, address, and contact information) for the last 2 years of residence history (we also need your addresses where you lived).
- Anything else the loan officer deems necessary from their initial pre-qualification phone call with you.
After the pre-qualification comes the most important step, the home loan application and consultation. This is where your documents are gathered, reviewed and compared to the information you provided verbally over the phone or online. This meeting generally lasts an hour or so; and is your best opportunity to ask the most questions and get the face to face answers. A lot of forms will be presented to you for signature. This IS NOT a commitment on your part or the lenders part to commit you to the loan. It is just an Application only, applying for the loan to get the money. The more documentation you have with you or send ahead of your appointment, the more thorough the meeting is and the faster you will achieve our ultimate goal, APPROVAL!
The bottom line to a good pre-qualification: details, details, details. If there is something your instincts are urging you to mention, do it. It’s always better to have too much information, than not enough! Saves so much stress on down the line! Good luck with your home loan and house hunting extravaganza!