First-Time Buyer: How early should I get prequalified? (PMI, loan officer, real estate)

[smitity]

I am planning on buying my first home sometime in the next year. I have a good idea of the area I want to live, and how much the homes cost. I have a good credit score and very little debt at the moment.

Even though I don't think I will be seriously looking at homes for several more months, I was thinking about getting pre-qualified for a mortgage so that I have an idea of how much I can actually afford. My understanding is that pre-qualification is different from pre-approval, which requires more financial info and typically is only good for a few months.

My main question is, is there any downside to getting prequalfied now, nearly a year before actually buying?

If there's no reason not to do it now, is there a good way to go about the processes this early? Would online inquiries with a few banks work? Or should I go more in depth and meet with someone? Keep in mind I don't plan on buying for nearly a year, I just want a better idea what I'll be able to afford when that time comes.

This already overwhelmed future home shopper greatly appreciates any advice

[beb0p]

It's never too early to get pre-qualified. At the very least it gives you an idea of where you're at in terms of purchase power.

Shop around for the lowest rate before you commit. Bank rate can varies by a lot. I remember Chase was a full 1% point higher than their competitor. Credit Unions usually offer the best rate but they're very strict. Some Brokers can offer good deals. Start doing the homework now so you'll be less pressed when it's time to buy. Also make sure you're comparing apples to apples - understand all the fees; some banks impose origination fees, some banks give you a quote with points factored in, etc ,etc. ask for a Good Faith Estimate, it should show you the APR. It's a good idea to compare APRs.

But don't apply to too many institutions though. Pull your credit score too many times can lower it. Not sure if a pre-qualified would pull your credit or take your word for it.

Sure I'm missing something but it should be enough to go on. Good luck.

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[TalkingShoes]

If I'm understanding your post, you are just wanting some general information.

So go ahead and meet with a local mortgage broker or talk to a loan officer at a bank branch. A lender should be happy to meet with you and help you understand your options including an upper bound on what you could borrow.

They shouldn't need to pull credit at this point unless you want pre-approval. You will eventually want this but maybe wait until you start looking at properties.

The only downside I can think of getting pre-qualified early on is that your situation and the mortgage market can change between now and when you are ready to get serious. Just go in with the expectation that you are getting a rough estimate that is subject to change.

One other bit of advice; A lender is not looking out for your best interest. They might qualify or approve a loan of a much larger amount than you were expecting. It may not necessarily be wise to actually borrow at that limit. Search out a mortgage payment calculator somewhere online to figure out a monthly payment you will be comfortable paying (don't forget taxes and home owners insurance).

[Lacerta]

A preapproval is only good for a certain length of time, so there is no reason to go that far until you are ready to actually buy a house.

But there is no reason not to go talk to a lender now and find out what you are in for. Otherwise, what if you wait until you are ready to buy, and then the lender tells you that you don't qualify at all based on time at your job, or credit score, or debt:income ratios, or that you do qualify, but not for the best rates. If you went now, you could spend the next year making sure that you are in the best shape you can be.

Here is what I would do.

Talk to friends and family, and get a referral for a good lender that they have recent experience with. If you know anyone in the real estate industry (agent, title company officer, real estate attorney, etc) they would be a good place to start asking.

Once you have a name, pull a copy of your credit report from annualcreditreport.com and pay the $7.99 or whatever it is to get a score along with the report.

Take that report in to the broker/lender and talk to them honestly about your financial situation, provide copies of whatever they need.

They should be able to tell you at that point a rough number you could qualify for today, or what you need to do to clean things up.

And great advice from Talkingshoes. Lenders often approve people for more than really makes sense. Don't count on that number from the lender. Sit down and take a good look at your finances, and figure out what YOU think you can afford as well. Then subtract at least 10%. Then aim for the lower of the two (between that number and the number the lender gives you)

[piyf]

I wouldn't get pre approved yet. There's calculators on the net for what you're asking. What do you spend for rent now? How much more can you afford extra (on top of what you pay for rent now)? Just because they approve you for a certain amount doesn't mean you should spend that much. Even today they approve way more than what people should spend on a home based on what they make a year. Do yourself a favor and get a 15yr mortgage.

[SmartMoney]

If I had a nichol..........

If you have never had your credit report pulled for a mortgage, yes, go do it now. I can't begin to tell you how many "surprises" the average person finds...........suprise enough to stop a mortgage in its tracks. If your score is good, one pull will never do enough damage to cause a ripple. Find someone local......someone you would be comfortable contacting in the future and on the weekends or after hours to run an estimate or payment for you - chances are when you find something, it won't be between 9 to 5 pm.

I cannot think of one reason not to get prequalified. And to give you an idea of the information you will gather, here's something I send out to prospective customers:

THINGS YOU WISHED YOU KNEW IN ADVANCE….Really.

First, my goal is not to scare you. Far from it. My goal is for your home buying experience to be as stress-free as possible. But I am also a believer in explaining why things are the way they are. And that is what I am attempting to do here.

Everyone has heard a horror story when it comes to getting a mortgage loan. What isn’t being shared with the general public is the fact guidelines continue to get tougher and more detailed with every passing month. No one is unscathed: not the first time borrower or the veteran, move up buyer. If you received a mortgage loan in 2010, the differences will be evident in the required documentation. There’s a threefold reason for the lending lock-down: investors (banks) don’t want the home back in foreclosure, and insurers (PMI) don’t want to pay claims, and the federal regulators are determined that certain procedures will be performed at certain times in the loan application’s lifeline. Add to that, when lending is tight, instances of fraud are on the rise. Even though it feels like the planets are lining up against the applicant, never has it been a better time to invest in real estate. So, with hopes of minimizing your challenges, here are some tips.

Credit cards. While shopping for a home, it’s very important to keep your credit cards paid on time and restrain from any large purchases. Please avoid letting anyone run your credit while you are shopping for a home and please do not close any revolving accounts. This can actually lower your score, even as much as a late payment could. About 72 to 48 hours prior to closing, a soft-pull (meaning it won’t show or hurt your credit score) report is done. This will tell us if there have been any new accounts opened, any inquiries for new credit, and any increased balances. Substantial increases mean another trip back into underwriting.

Non payroll deposits. If your bank statements have “counter deposits” listed, we will be required to show the source of those funds. In many cases, it could be a payroll check that doesn’t have automatic deposit. Or, it could be an insurance reimbursement check, bonus check or the sale of an item. We go back 2 months on the statements, in some cases further (we really try to avoid this), but every file is different. The best way to handle deposits that are not already identified as payroll is to make sure you deposit the full check (so the check stub matches the deposit). If there is no check stub or tear off description, please make a copy of the deposit before making the deposit. Please do not deposit any gift funds without specific documentation with me and call me should someone give you cash. Why all this bother? All loan types require we verify the funds as rightfully belonging to you.

Unreimbursed employment expenses. If you claim unreimbursed employment expenses on your tax returns (Schedule A, line 21 or Form 2106), it is imperative you share this information with me. Most loan programs require us to pull IRS transcripts to check for these expenses, which lower your qualifying income. (We have portfolio programs, as well as, USDA which do not require tax returns unless someone is self-employed or receives commission income).

Your prequalification numbers. Several factors go into play when I prequalify you for a mortgage. They include interest, real estate taxes, HOA fees, Condo Fees, and loan program. If they change, your maximum mortgage changes. I will typically give you a sales price range and number I call “your number,” meaning your max payment. Three months from now when you call me (and I’m nowhere near my computer) to see if you can buy THE HOUSE you just found, I can ask you for “your number” and then qualify you for that specific home. If your debts or income changes, be sure to check back with me, so we can adjust your max payment, aka, “your number.”

Forewarned…..it can make all the difference in the world.