ScaredyCatGuide to Real Estate Investing - Part VI - Getting Pre-Qualified For A Loan
The single most important piece in buying real estate is having the money to do so! I know, pretty obvious right?
Unless someone is paying outright cash, then they will need to get pre-qualified for a loan to purchase a property.
It's scaredycat time to discuss………
- How to get pre-qualifed
- What that pre-qualification does fo us
Getting Pre-qualified
Step 1 – Call a lender
Traditional mortgage lenders are everywhere. From your local bank (credit unions, regional and community) to national banks (wells fargo, chase) to lenders like quicken loans. Any one of them will be happy to get you pre-qualified (because they want your business!)
You can also call a mortgage broker, who will shop around to find the best loan for you (for a fee of course) If you have no idea how to compare rates or points then this may be worth the service.
Step 2 – They will ask you questions about your finances and credit
- How much income to you make
- Do you have credit card debt, car loan, etc.
- What is your credit score
- How much do you have in savings
- Estimate on the price of properties you are looking at
Be sure to give them the most accurate information you can in order to get the best estimate possible.
Step 3 – Pre Qualification Letter
The lender will crunch the information you provided and shortly after send you a prequalification letter
What the pre-qual letter tells us
- How much the bank is willing to lend us.
With this information we now have a price point to use in our property search. Many people skip over this step and fall in love with properties they cannot afford.
Find out what your number is first. If it’s for a purchase price of 150K then there is no point wasting time looking at properties selling for 200k.
There is something else you should know…
Pre-qualification Does Not Guarantee You Will Get a Loan for that amount.
A pre-qualification basically provides a number the bank thinks they will lend you based on the information provided.
This letter is helpful though. It let’s us know what price range we can search for property.
However – we need to get Pre-Approved for the bank to tell us exactly how much they WILL lend us.
This is a bit more involved as the lender will want to verify info you provide in addition to receiving copies of financial documents.
NOTE: Do not get confused by the pre-qual letter. The picture above is a prequal letter I received. Most lenders call it a pre-approval now (causing confusion). You have not been approved until an underwriting review has been done.
Getting Pre-Approved
Additional Steps
- Tax Returns (usually the past two years)
- Credit Check
- Pay Stubs (to verify income)
- Bank Statements (to verify savings)
- Copy of your photo I.D.
Once the lender reviews and confirms all of this information then they will issue an actual pre-approval.
Which basically means if you find a property within the allocated price range the bank will provide the financing.
Your ScaredyCatGuide,
Mitchell J