The first step in buying a home is to determine how much home a prospective buyer is able to buy. This can be achieved simply by speaking with a mortgage broker or a commercial bank. There are 4 basic steps in the qualifying process:
1. PRE-QUALIFY – This process is not rocket science and doesn’t take but a few minutes to do. A loan officer will take some basic information regarding income, debts, money in the bank, and time on the job. With this information they can give an idea of how much home can be purchased (the purchase price) and what a future payment could be. However, this is just an idea. This step is generally only good if the basic information provide is accurate. It is not generally accepted as proof that a buyer could actually qualify for a loan. Most real estate agents who represent a seller will require a pre-approval letter be delivered along with an offer to purchase.
2. PRE-APPROVAL – The pre-approval letter is several steps above the prequalification process mentioned above. A lender (or loan officer) will generally take the following steps before issuing a pre-approval letter:
- View the credit report and verify the credit score
- Verbally verify income and time on the job with an employer
- Verbally verify rental history
- Request to see bank statements, W-2 forms, and other documents
Once these steps have been accomplished with their satisfaction, they will draft a letter that can be delivered to any appropriate party that based on the factors above, the prospective buyer should be able to purchase a property for a specific amount.
3. CONDITIONAL APPROVAL – Sometimes a lender will deliver a “Conditional Approval” letter. These can be one and the same as a “Pre-approval” letter. However, the conditional approval that I speak of here is after a buyer has delivered all information needed to his lender and his credit is approved. He is just waiting at this point for either one of two things to take place: a) find a home and have it appraised, and/or b) deliver to his lender appropriate information that has been requested so that the file is complete.
Generally speaking, this step happens after a home has been found, an offer has been written and accepted, the inspection and appraisal have been completed, and the complete file has been sent to the underwriter for approval. At this time, the underwriter will return the file to the loan officer with a list (hopefully a very small one) of things that must be completed before a ‘clear to close’ can be given. My favorite lender is so good, that she almost never has a file come back with conditions. She submits it once for approval and it’s returned with a “clear to close”. Actually, she told me once that it literally angers her to have a file come back with a condition request.
4. CLEAR TO CLOSE – The is achieved when the entire file given to the underwriter is approved. It is said to be “clear to close”, and therefore, the file can go to the closing department where documents can be drawn for signatures and appointments can be made with the buyer and seller to close the transaction. Honestly, those words, “clear to close” are music to my ears.
In the end, qualifying for a mortgage loan is not a difficult process if you understand the steps involved. Ask your Realtor, or your loan officer to explain the process to you in more detail. I’m sure they would be happy to do so.