Buying Tip: Pre-Qualifying

by kenlavertu on June 15, 2012

in Latest News

Last week we talked about your credit score and down-payment. These are the most crucial steps – cleaning false negatives from your credit report and determining what you can pay. They’re also the two most time-consuming.

Once you’ve done the heavy lifting, you’re almost ready. The next step is obtaining a pre-qualification letter. The pre-qual letter affirms that the buyer is a good credit risk and lists the maximum price he can afford.

Pre-qualifying sometimes catches buyers off guard, especially those who don’t have all their materials in order. But before you go home shopping, here’s a list of materials most banks request before writing the pre-qualification letter:

  • Copy of two most recent tax returns.
  • Copy of three most recent pay stubs along with employer(s) contact information.
  • Proof of any other regular income sources: annuities, child support, alimony, disability, social security, etc.
  • Copy of three most recent bank statements.
  • List of Assets: copies of most recent statements for all savings accounts (IRA, 401K, 529i, HSA, Mutual Funds, etc). Whatever money you’ve saved, list it and prove it with documentation.
  • List of Liabilities: most recent statements for car payments, other mortgages, credit card debts, medical bills, student loans, child support, alimony, or any other debts you owe.
  • Proof of residence – documents that contain your home address: utility bills, rent/mortgage statements, etc.
  • Explanation Letters for negatives on your credit score. Perhaps there’s a legitimate negative on your credit score, but you had an extenuating circumstance. Explain in in a brief letter why that negative was out of character.
  • Copy of your driver’s license.
  • Copy of your Social Security Card, so the lending agency can pull your FICO score.

Some buyers have a hard time collecting all the required information. Understand that financial institutions, for your security, do not disclose information over the phone. Even if you call them and request statements mailed to you, it usually takes a couple weeks.

Once you’ve gathered all your information, make several copies – you’ll likely need it two or three times (yes, banks lose information). Only after you’ve gathered all your info can you request a pre-qualification letter from a bank. The pre-qual letter is just a first step. Neither you nor the bank are committed at that point. But having a pre-qual letter makes you a serious buyer – one that will make sellers more willing to negotiate.

If you have any questions about what information you’ll need to provide, call me: (970) 663-7070. I’m happy to step you through the loan process. Remember, the bank is committing lots of money to you – so put your best foot forward.

 

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Post by Ken Lavertu

Ken has written 31 articles.

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