Once you have an idea of the type and size home you want and the area you’d like to look in, you should be pre-qualified by a Lender. By doing this before looking for a home, you’ll save yourself time, energy and frustration because pre-qualification can:


Determine how much home you can afford

Though you may be willing to spend until it hurts, the name of the game is how much a lender calculates you can afford. Your lender will help you through the financial process of pre-qualifying (targeting the amount that a financial institution will lend you). Pre-qualification enables you to avoid buying more home than you can afford or being disappointed if you don’t qualify for as much as you had hoped.

Show what your total investment will be

You’ll know approximately how much money you’ll need for a down payment and closing costs.

Inform you of your monthly payment

Lenders use slightly different formulas for arriving at the total monthly house payment. These costs generally include your mortgage principal and interest payment, property taxes as monthly figures, and hazard insurance as a monthly figure. These four items are referred to as PITI (principal, interest, taxes, and insurance). If you’re putting less than 20% down, the lender may require you to buy private mortgage insurance (PMI), and the monthly premium will be included. If you decide to buy a condominium or townhouse, the monthly homeowner‘s association fee is likely to be part of the total monthly payment. These formulas can change from lender to lender, so your best bet is to consult with several experts in the field.

Identify the loan programs you can qualify for

At this point, your lender can also help you determine alternatives and strategies that could help you buy the home of your dreams, like special first-time homebuyer programs or debt consolidation counseling. With the wide variety of loan programs available, it is essential to know which types you qualify for and which will best suit your needs.

Strengthen your offer

Sellers are more inclined to accept realistic offers when they know that you have taken the time to be interviewed by a lender and can qualify for a loan.

To be pre-qualified, you will need to provide the lender with the following:

  • Your residence history for the past two years
  • Your employment history with dates and locations
  • Two years of tax returns and W-2s (or profit and loss statements if self-employed)
  • Three months of statements for all accounts, including bank, brokerage, loan, credit card and retirement
  • Details of any real estate, vehicles, or other personal property you own, including loan balances and market values

Your lender will be able to provide you with a more specific checklist as well as an overview of the loan process from start to finish. If not offered, consider requesting this information from your lender.