Disclaimer: I'm a licensed Loan Officer (NMLS ID 1662211) (Mod cut-this would be considered advertising here on myFico and its prohibited)- Most lenders and Loan Officers will want to pull your credit in order to evaluate the following:
1. Identify your total monthly debt and calculate your total DTI ratio. This is important because not all debts are required to be reported as debts when qualifying for a loan. For example, if you're 6 months from paying off a car loan, that monthly payment doesn't have be included in the DTI ratio calculation. If you can provide a recent credit report from a reputable source like a myFICO report - a good loan officer can give you a general idea of what you might qualify for. But keep in mind Loan Officers and lenders want you to allow them to pull your credit as a sign of your commitment to purchase a home. Most people who aren't ready to purchase won't want the hit on their credit. Also, credit reports aren't cheap to pull. Some lenders will charge you to pull your credit.
2. Check your credit score to see which loan programs fit you best. Most lenders will use your middle score from the three credit bureaus as the primary score to qualify you. If you're married, whomever has the lowest high score, they'll use their middle credit score for the pre-qual.
Typically, a score of a 640-679 will qualify you for a conventional loan, however the interest rate may be higher due to your lower score and credit risk. The ideal credit score of 680+ will get you a pretty good to stellar rate. Anything under a 640-540 is an FHA loan. There aren't many lenders that will go as low as 540, but they're out there.
One thing to keep in mind when you ask to get pre-qual'd for a loan without a hard pull, they can't guarantee what you'll qualify for. They're making an educated approximation based on the facts you've presented them. Many Loan Officers and Lenders tend to shy away from using credit scores verbally told to them because most consumers think their credit is better than it actually is. Don't get too upset if what they first told you is completely different than after they've pulled the credit. There are just so many factors to take into consideration, so without a good look your financial situation they can't be sure.
I suggest future home buyers start preparing at least 1 year before they purchase a home.
Here's a quick checklist to gauge whether it's the right time to pull credit.
1. Start 1 Year before you're wanting to buy a house. Get a credit health check by getting your myFICO score.
2. Don't plan any big purchases this year. Don't APPLY for or OPEN any new credit cards or loans. NO NEW CARS.
3. Start paying down your cards. Notice I didn't say PAY OFF, I said pay down. Which leads me to my next point.
4. Start saving for a down payment. You don't need 20% down for a house most of the time. But you will need money down. (Unless you're a Veteran. Ask your Loan Officer/Lender about VA Loans.) There are loan programs that allow you to purchase a home with 3% down. Again, just ask your lender/loan officer about them. I know some of you are gonna say paying for mortgage insurance is bad or a waste of money. But it really isn't. You should consider that large lump sum of money you just handed over as a down payment... Generally, most people don't plan on staying in their first home longer than 5 years. So it doesn't make sense to dump all that cash into your house. Have your LO crunch the numbers to see if it makes sense to save money on that down payment and keep that extra cash in your pocket for investing/rainy days. Or if it's better to put down the full down payment to get you into your forever home.
5. Be completely honest about what you want out of your loan. Everyone's financial fingerprint is different and everyone has different goals. Just be upfront about what your finacial goals are for the next 5 years and they can help you decide what the best path is for you. If they don't offer to partner with you find the best solution go somewhere else.
6. Ask questions. If they don't try find answers to your questions or really bad about following up - RUN LIKE FOREST GUMP and KEEP RUNNING! You're gonna have a bad time during the entirety of the loan process.
7. If after 6 months, you have a few thousand in the bank and your credit scores are looking good, get a hard pull pre-qual. The hard pull won't hurt your score because you've followed This will provide you the hard fast guidelines you'll need to follow for the next 6 months to get the best loan for you.
A few final tips:
When you're shopping for a loan, I suggest you go with a mortgage broker or your credit union. In MOST cases, a broker is going to be able to get you the best loan based on your personal financial profile and goals. Brokers are able to shop around for several lenders with a single credit pull. A credit pull is good for 120 days, and you have 90 days to find a home and 30 days to close.
It's not always about the interest rate.
You should ask what the total cost of loan is. There are lender fees and origination fees, and a bunch of other fees that some banks and lenders charge consumers for and some lenders that don't. (Mod cut-this also is inappropriate advertising here on myFico) Be wary of small boutique lenders and big banks. I'm not saying they're all bad. Just watch out for those fees. It could cost you or save you a few thousand dollars.
And finally, NOT ALL BANKS AND LENDERS ARE CREATED EQUAL. Find someone who is willing to partner with you on this new and exciting adventure.
I hope this helps.
