Loan pre-qualification is the first step in preparing to buy your first home. It is important to pre-qualify with a reputable lender before you go out looking for homes.

To get pre-qualified you should have a licensed loan officer pull and review your credit and income documents like W-2's, paystubs, and tax returns. The loan officer will ask questions about your current rent payment and what your comfort level is in a house payment. The loan officer will also inquire about how your employment looks for the future and also discuss the way you are paid. For example a commissioned sales representative may write off some unreimbursed expenses on his taxes and this would impact his/her gross earnings.

Finding out how much home a family can afford is a simple math excerise. We look at income versus debt and with most loan programs we don't want to see more that 40% of your gross income going to your house payment added to your other monthly debt like an automobile payment, for example.

Lastly the loan officer will focus on your house payment comfort level and show a sample payment that includes all the escrow components of the loan: Principal & Interest, Property Taxes, Mortgage Insurance(if applicable) and Homeowners Insurance. If the client is comfortable with the proposed payment and terms, the loan officer will generate a pre-qualification letter that the borrower leaves with. This letter usually says something like this: I have reviewed the credit and income for Mr. and Mrs.X. They have sufficent income and credit to purchase a home at $120,000, subject to an appraisal supporting the purchase price of the home.

The letter is given to the client's realtor and is submitted with an offer to purchase on a property. It shows your seller that you are making a serious offer and you already have the endorsement of the lender.

Pre-qualification for a loan is different that pre-approval. Pre-approval is when a person makes loan application for a home loan without a property and goes all the way through loan processing and underwriting--which is the final check of the loan.

Pre-qualification is almost as good as pre-approval, if conducted by an experienced loan officer. We ask enough questions and review enough income and credit documents of the borrower to know that they will be approved for a certain type of loan(FHA for example) based on the loan officer's years of experience doing those types of loans and knowing the guidelines.

It makes sense to get pre-qualified before looking for your first home so you can move forward with confidence and know that you will not be getting into more home that you can comfortably afford.

Ken Baltes

American Security Mortgage

North & South Carolina