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No doubt the Internet is packed with valuable information about mortgage guidance, tips, and education. People need only type a few words into their search browsers to instantly have a wealth of information at their fingertips or to find a low mortgage rate.
But the truth is, some essentials are overlooked, leaving people without crucial details to make an informed decision. With that in mind, Motley Fool analysts, Kristine Hartjes and Nathan Hamilton, discuss in the video below one mortgage essential homebuyers may get wrong or may be confused about.
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We have information ready all the time at our fingertips via the internet about just about anything, so when you're looking up information about something like mortgages, your options are endless. And there's so much information out there. A lot of it is good. Some of it's not great...
...and so we're here, today, to try to protect all of our Foolish listeners from this salty information. To get you the best possible information about mortgages. So we're going to kick this one off with one crucial fact that people get wrong when it comes to mortgages.
And it's just a matter of diving a little bit deeper and understanding what is actually happening with this process. One thing that people get wrong is a mortgage pre-qualification versus a mortgage pre-approval.
OK, they sound similar.
They do. They start with the same three letters put it that way but they're far different for everything else. A pre-qualification is really just dipping your toes in. It's a very soft inquiry with a mortgage lender that says, "How much could I potentially borrow? What would my rate possibly be?"
But if you're looking to close quickly on a home if you're in a market where it's a seller's market, there's competition, and maybe people are paying cash for houses you need to get pre-approved beforehand, and what that does is it shows the seller that "I've actually gone through the whole approval process. They've checked my credit scores. They've pulled my W-2s. They've looked at all the information out there. I'm qualified on paper. I can sign for this amount at this rate, and if we do close, I can have my funds available in this time frame."
What is that time frame, typically?
With a pre-approval, generally it's going to be about 90 days.
And it seems like a pretty rigorous process to get pre-approved...
...an important one, but one that involves lots of documentation. What do you need to have ready?
We'll run through the list, here, and essentially there's a few things (about five line items) to look at. So proof of income. That tends to be your W-2s and about two years of tax statements. And then proof of assets your cash, bank account statements. If there's money under your mattress, you're going to need to prove where that came from. If it was a gift, not a gift, anything. There needs to be documentation for all of this.
And then you're also going to need to provide your credit score, which they'll pull for you, and that's, of course, why you do want to give some attention to make sure that there aren't any errors [and] there aren't any unknowns when you are going through the process.
The other part is employment verification. Lenders generally want to see some sort of stable job history. And the last is your ID and social security number.
Great. As you mentioned credit score, that is one really important component to this entire process. If you're looking for some tips on boosting your credit score, you can check out Fool.com/Mortgages where we have a guide called "5 Tips to Increase Your Credit Score Over 800." While you're there, you can also get started with a pre-approval, or you can download any of our other free mortgage guides.
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