Growing up, most of us heard the words “be prepared”. Although it sounds ominous, this advice is applied to most aspects of life, including home buying. In order for the loan process to run smoothly, one of the smartest things to do is get pre-qualified for a mortgage. A pre-qualification is an estimate of how much you can borrow from a lender and it allows you to explore loan options specific to your financial situation. Pre-qualifying for a loan before you go home shopping helps you set a budget and strengthen your negotiating position when making an offer.
How to pre-qualify
Pre-qualification is a simple process which can be done at zero cost and completed online or in person. Contact your Loan Officer to find out which documents you should prepare and to complete the pre-qualification form. Once you pre-qualify successfully, you can request a letter stating how much you may be able to borrow based on the information you provided. You can share this with your real estate agent or simply tell the agent a price range based on the outcome of your pre-qualification.
Pre-qualification vs. conditional approval
A conditional approval requires more information and is a much more serious level of approval. Conditional approval means you will have a commitment to a specific loan program at a specific loan amount. It will also provide more information about your interest rate and monthly mortgage payment.
Before you start your journey as a home buyer, the best place to start is by contacting your Loan Officer and getting pre-qualified
Obtaining a low mortgage interest rate can help you save money on the price of your home. While many people try to compare lenders to secure the best possible rate, one of the main determinants of a mortgage rate is your credit score. Borrowers with higher scores are more likely to receive a lower rate than those with lower credit scores. Most lenders view a potential home buyer with a high credit score as more dependable and less likely to default on mortgage payments.
What is considered a “high” score?
The highest score a person can have is 850. However, it’s unusual for someone to have a perfect credit score. Most home buyers should aim for a score of 720 and above to qualify for good mortgage rate. If your credit score goes below 620 it can be difficult, though possible, to get a mortgage as well as a favorable rate. For an approximate breakdown, here is a range of how credit scores are judged:
Excellent = 720 and above
Good = 660 –719
Fair = 620 – 659
Poor = 619 and below
Can I still obtain a loan with a low credit score?
If you know your credit score isn’t stellar, it doesn’t necessarily mean you cannot qualify for a mortgage. For example, an FHA loan is a popular loan type among first-time homebuyers which accepts less than excellent credit scores. When you begin the mortgage process, your Loan Officer will order a credit report and you can start to explore your options in more detail.
Finding your credit score
A credit report can come from three different reporting bureaus: Equifax, Experian, and TransUnion. These reports require some background information and security questions, then deliver an outline of your credit history. However, if you’re interested in simply retrieving the number, you can easily view your FICO credit score, through your credit card company or online. It’s important check your credit score in order to determine whether you should improve it before applying for a loan. Speak with your Loan Officer about when you’re looking to buy and what you can do to in the meantime to increase your credit score.