When you’re ready to buy a house, there is one step you need to take before you start looking at homes — get pre-qualified for a mortgage.

Pre-qualification is the process of going over your finances, so you can see how much mortgage you qualify for. You’ll look at the factors that might affect your ability to get a mortgage, your estimated payments, and whether now is the right time to apply.

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Gather Your Documents

To give your potential mortgage lender an accurate look at your finances, you’ll need to provide some of your financial documentation. You may not need everything on this list, but it won’t hurt to pull together the following:

  • Two years of W-2 statements (or tax forms and profit & loss statements if you’re self-employed)
  • Your employer’s name and contact information
  • Information about your position, including job title, salary, and employment length
  • Checking and savings account statements
  • Investment account statements
  • Information about auto loans and other debt
  • Proof of any child support or alimony payments you’re receiving
  • Proof of pension or social security payments
  • Proof of funds family has gifted you
  • Records of any bankruptcies, collections, foreclosures, liens, or judgments against you and an explanation of why they occurred
  • Information about your current home (if you’re already a homeowner), including estimated value, how much you owe, and home improvements you’ve made

That sounds like a lot, but a mortgage is a large, long-term loan, so your lender will need to see all this information. Better to get that part of the process taken care of early so you don’t have any surprises that hit once you’ve found your dream home.

Discuss Your Plans

Once you’ve given your mortgage lender your documentation, you can speak with them about what you are looking for. How soon do you want to buy a home? What are the home values in the area you want to live in? Are you looking for a starter home or a forever home?

You’ll learn how well your plans fit with the type of loan you’re likely to be approved for during that conversation. You may need to adjust your budget based on your creditworthiness. You may also find that you need to wait a few months to work on aspects of your credit to get better loan terms. Or that you should wait until you’ve been in your job longer or have paid more on your consumer debt.

If your plans match your ability to borrow, you’ll be ready to start looking for a house.

Use Your Pre-qualification to Land Your Home

Once you’re pre-qualified for a mortgage loan, you will receive a letter you can show sellers to prove that you are a serious buyer. This letter is typically valid for 60-90 days, so if your home search stretches too long, you may need to get an updated letter.

Many sellers won’t accept offers from buyers who aren’t pre-qualified, so this step might be the key to getting your offer accepted.

Why do sellers want this? Selling a home is a big deal. It is time-consuming, and a seller needs to know that your offer to buy their home is likely to go through. Without getting pre-qualified, you may not get approved for a mortgage, or your mortgage may not be enough to buy the home you’re putting an offer on. In that case, the seller is back to square one. They have to re-list the house, and if they are buying a home on the contingency that their current home sells, they may lose out on the home they want to move into.

What if you’re not sure about your creditworthiness?

It can be a good idea to look at your credit report to ensure there aren’t any errors that will make you look like more of a credit risk. You will also be able to get a good picture of how you might look to a lender. Each year, you can get a free credit report from the three credit bureaus at annualcreditreport.com. If you do find errors, you can use each bureau’s website to report the error and have it removed.

Once you’ve made sure everything in your report is correct, let’s talk. We can go over your finances and see if there are any issues to address before you even start the pre-qualification process. We can help you make a plan to be home ready when it’s the right time for you.