Once you have made the exciting decision to purchase a home, the very first step is to get prequalified for a home loan. This should be done before you even begin looking at potential homes. Don't fret: it is very easy to get prequalified for a home loan, and the prequalification process is not time consuming.
If possible, begin cleaning up your credit months before you plan to get prequalified for the loan. Request copies of your credit report from each of the three credit bureaus, and dispute any items that are inaccurate. Make sure all accounts are current or paid in full. You want the best possible credit score in order to get the best possible home loan. If you have some issues to dispute or accounts that need to be brought current, this process may take several months to complete.
Once you have checked your credit report, determine which lender you want to use for your home loan. Ask for referrals from friends and from your realtor, and check with several different lenders in order to find the best interest rates for your home loan. In addition, if you are not happy with the rate and amount you are prequalified for, you can always go to another lender to compare your home loan options.
Many lenders will take care of the home loan prequalification over the phone. You will need to provide the lender with your gross monthly income as well as total monthly payments, including car payments, credit cards and all other payments you make. The lender will use these amounts to determine what loan amount and payment you are prequalified for. At this point in the prequalification process, the lender normally does not request any documentation from you or pull your credit report. The prequalification is based on information that you provide, so make sure it is accurate. When you are ready to move forward with the loan approval, the lender will need employment documentation and a credit report.
The lender will give you a prequalification letter, which you can show to realtors to prove that you are a serious home buyer before you begin the negotiation process. The prequalification letter is not a guarantee of a home loan, but indicates that the lender has reviewed your information and everything appears satisfactory. Now that you are prequalified for a home loan, start looking for that dream home.