First Time Homebuyer Series - Part 2: Loan Prequalification

In Part 1 of our First Time Home Buyer Series, we talked about tracking your spending, saving for a down payment, and making a budget. In this installment, we will look at the next step, Loan Prequalification.

What is loan prequalification?

In the simplest terms, loan prequalification is the process in which you get pre-approved for a specific loan for a specific amount. This process is done with a lender like our lending partner Mark Daker at Fidelity Bank. You can find lenders in lots of places - your bank, credit union, and online to name a few. Personally, I think it is important to work with someone who has an expert knowledge of lending and who will take the time to understand your personal situation. A variety of loan products exist, and it is important to find the one that best fits your housing goals. Also, you aren't locked into using the lender who prequalifies you, so unless you have a really unique situation, I wouldn't suggest getting multiple prequalifications.

The lender will ask you a variety of questions about your financial situation. Always be truthful and forthright in this process even if you think that something in your financial picture will be harmful. You don't want to and can't hide this information as you go through the loan process. By telling the lender up front, it allows you to make any changes or make preparations to get over these hurdles.

Once the lender collects your information, they will be able to tell you what loans will work for you and what price house corresponds to the monthly payment you targeted in your personal budget. We will use this price to start your house hunt. It is also common for buyers to be approved for more than what they really want to spend on a monthly basis. Just because you are preapproved doesn't mean you have to spend it Stick to your budget!

Why should I get prequalified?

Once you are prequalified, you will know the answer to some of the biggest questions in the home buying process. The lender will be able to tell you:

- The required down payment
- The interest rate of your loan
- The monthly payment
- The house price that corresponds to that monthly payment

These answers will just be estimates, but the lender will make sure you know everything that needs to be estimated. If you use a simple online mortgage calculator, you are likely to miss something from closing costs to PMI to taxes to home owners insurance. The lender and your Realtor can walk you through each of these costs.

The other big reason to get prequalified is to help you find your dream home. The prequalification will make sure that you are looking at houses in a price point that you can afford. When I first started helping people buy houses, I didn't require buyers to get prequalified before we started looking at houses. I can't tell you how many times we looked at houses that my clients could not afford. They often made estimates on their own and missed key components. It's heartbreaking to find a house you love and then find out you can't pay the price.

At the end of the prequalification process, the lender will give you proof of prequalification in the form of what is commonly called a "prequal letter". We will need this letter when we submit an offer for your new house. Every seller wants to see that the buyer has the ability to get a loan that will allow the buyer to pay for the house. This letter serves as proof. Often, when we find a great deal, we have to submit an offer ASAP! If we don't have the prequalification in advance, it can delay our offer and hinder our chances in getting the house.

The bottom line is that a prequalification will answer many the financial questions about home buying and put the buyer in position to start searching for their dream home!

If you are at this stage in the process, call a lender you know or call Mark Daker, 770-649-4949, to get prequalified.

Justin Landis
Keller Williams Realty Peachtree Road
404-803-0471
justin.landis@kw.com