How to Get Prequalified for a Mortgage

If you’re looking to buy a new home in Sacramento, 2021 just might be the year to do it. Mortgage rates are hitting record lows, with 30-year fixed mortgages seeing rates under 3%! That kind of rate isn’t something you’ll want to miss, and that means you’ll need new home financing, fast.

But how does someone start the process of buying their first home? The first thing you will need is to get pre-qualified for your mortgage. This might seem daunting to first-time homebuyers, but it doesn’t have to be – you just need to have the right documentation. Here’s what you need to know.

Prequalification vs. Preapproval

First, it’s important to understand that prequalified is not the same as getting pre-approved. A pre-approval means that the lender has verified your financial information, agreed to loan you a certain amount and produced a letter saying as much. This is a great way to back up your offer when you find your dream home, but it’s typically not the first step in buying your home.

When you get pre-qualified for a mortgage, you meet with a lender who reviews your financial situation and gives you an estimate for how much you can borrow and the interest rate you can expect. This is a great first step, as it gives you a realistic estimate for the type of house you can afford and what your monthly mortgage would be. Armed with that information, you can make sure that the home you purchase will suit your needs.

What You Need

So, how does one get prequalified for a mortgage? As we said above, your lender will need to review your financial information to determine the allowable amount and rate for your home loan. To get that estimate, you and/or your spouse will need to provide the following:

Proof of Income and Assets

Lenders must make sure that their borrowers have the financial means to pay their loans back, so it’s critical that you produce W-2 wage statements, pay stubs, and tax returns to indicate your annual income. Ideally, you should be able to produce two-years’ worth of financial history, as well as bank statements to show you have the means to cover your down payment and closing costs.

Good Credit

If you want to get home financing, you will need to have good credit. Most lenders will only approve a loan if the buyer has a credit score of 620 or higher, although some FHA loans (Federal Housing Administration) will approve buyers with a score as low as 580. Additionally, a higher credit score can mean a lower interest rate (buyers with scores above 760 typically get the best rates), so do what you can to improve your score before getting prequalified.

Employment Verification

Finally, your lender will want to know that you are currently and stably employed. You’ll have to produce pay stubs, and your lender will likely call your employer to verify your position and salary. If you’re self-employed, you’ll likely need two years of tax returns to verify your earnings.

If you can provide this information, congratulations – you’re one step closer to buying a new home! Now it’s time to start looking for the home of your dreams at Blue Mountain Communities.