In almost all circumstances, buyers should pre-qualify for a mortgage before starting to look for a home.

What is pre-qualification?
In short, it means providing basic financial information to a lender so they can give you a preliminary indication of how much money they are willing to lend you for the purchase of a home.

What is a lender?
A lender can be either a bank, a mortgage company, or a mortgage broker. A bank offers banking services and accounts as well as offering loans. A mortgage company is just in the business of making loans. A mortgage broker contacts multiple "funding sources" on behalf of a home buyer to find the best loan.

How hard is it to get "pre-qualified"?
It is not difficult at all --- in fact, it can be done over the phone in about 30 minutes. Alternatively, you can set up an appointment with a lender to get "pre-qualified."

What is the lender doing when they pre-qualify me?
They will be inquiring as to your income, expenses, assets and liabilities. How much do you make per month from your job, and any other income sources? What monthly payments do you already have, such as a car loan, or credit card payments? What other assets do you own, such as a car, boat, additional residence, etc? What other debt do you have, such as another mortgage, personal loans, etc? After having collected this information, they will look at your credit score, and your "debt ratios".

What is a "debt ratio"?
This is a comparison of your potential monthly housing costs and your monthly income. Some programs, for example, don't like to see more than 28% of your gross monthly income going towards housing expenses.

What is the difference between "pre-qualified" and "pre-approved"?
This varies from lender to lender, but my general understanding of the distinction is that a pre-approval involves submitting all of your information to an "automated underwriting program" to be able to give you a Fannie Mae or Freddie Mac pre-approval.

Why should I pre-qualify first?
Having been pre-qualified for a mortgage gives you a realistic idea of how much of a mortgage you can obtain, or want to obtain. This will guide us as we set your home search criteria, so that we are not considering homes that would not be possible for you to purchase.

There might be a difference between what I can get, and what I want to get?
Absolutely! I have frequently run into situations where a lender will tell my client that they can borrow an amount that would lead to a monthly payment that the borrower is not at all comfortable making. Sometimes the limit is set by the limit from the lender, and sometimes the limit is set by the comfort level of the borrower.

How many lenders should I talk to?
To start, just talk to one lender to get a general idea of how much money you can borrow for your home purchase. Then, when we have found a home for you to purchase, you can check with multiple lenders to make sure you are getting the best loan terms (interest rate, closing costs, etc).

There are likely tens or hundreds of other questions that I could have addressed here. Feel free to ask other questions in the comments of this post, or by e-mailing me at scott@cbfunkhouser.com. I am not a lender myself, but I have become quite familiar with the lending process through assisting many real estate clients in analyzing mortgage options over the years.

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Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com