Applying and Qualifying for a Mortgage

In my view there is little sense in shopping for a home until you are pre-qualified by a lender, or until you prequalify yourself. With most lenders pre-qualifying costs you nothing. This is not a loan application; it is simply the process in which a lender (any lender or mortgage broker will do for this step) considers your financial situation and other details then tells you how large a mortgage you can afford. It typically takes less than half an hour and no documentation is required.

However, you must be sure to get an accurate pre-qualification; therefore, do not inflate your income or understate your debts and expenses as this will skew the loan figure you'll be given. Such anerror could cause you later to be turned down for the loan amount you need, perhaps when you're already set on buying a particular home. When you have an accurate estimate of the size of the loan you can get this figure will determine the total amount you can pay for a home.

If for some reason you do not make an application for loan pre-approval before finding a home, you are likely to have to endure some anxious days or weeks—the time it takes the lender to process your application. If you find yourself in such a situation, you can speed up the process by talking with the lender ahead of time, find-ing out what is required, then on the day you apply, bringing with you as many of the documents the lender will need.

In the application process all mortgage lenders seek to learn certain specific information about prospective borrowers. This enables .the lender to assess the risk you present.What Lenders Want to Know. The three chief questions lenders want answered are as follows:

1. Is your income stable, and sufficient to pay back the loan you are seeking?

2. Is your credit history that of a person who pays bills on time?

3. Is the home you are hoping to buy adequate collateral for the loan?

If your income has been fairly stable over the past few years, despite several changes of jobs, you are likely to get approval. Also, a consistent saving record can make up for some minor lapses inemployment. Job switching is more common today and is less an indicator of credit risk than it was once considered to be.

If you think your credit history will show late payments and other problems, the best thing you can do is start cleaning up your credit file well in advance of loan hunting—months or even a year ahead. If creditors have made errors on your accounts—quite likely,according to many borrowers—or if problems or disputes have been resolved satisfactorily to both sides, ask the creditor to have the entry removed from your credit file. Better still, get a letter from the creditor confirming the dispute's resolution, or noting the error.Then contact the credit reporting agency and ask to have the file amended.

Of course, you won't know what's in your credit file unless you get a copy There are three main credit reporting agencies. Each will provide you with a copy of the credit file they have on you.

Experian (formerly TRW) 1-888-EXPERIAN ($8 per copy)

Equifax 1-800-685-1111 ($8 per copy)

Trans Union Corp. 1-800-916-8800 ($8 per copy)

Once you have that, your next step is to go over the report and make sure there are no errors. If there are, you must begin immediately to have them remedied. Call the reporting agency and ask for help in doing this. You might also call the National Foundation for Consumer Credit 1-800 388 2227 for free advice on cleaning up credit problems, or log on to www.dca.org.

Keep in mind that the short credit report you obtain from any of the reporting agencies is not the report your lender will use. Instead,the lender will obtain what is called a merged report, a more comprehensive document combining individual agency reports. Whether or not you have had credit problems, you might begin by obtaining a copy of your merged credit report ($25-$35). Scrutinize it! It may surprise you—even by what it doesn't show—but that's a lot better than being shocked later, when you've invested time and energy and emotion in the home buying process. To obtain a merged report,call First American Credco ($30.95, including shipping and handling) at 1-800-443-9342, or log on to this company's website atwww.confidential credit.com, where you'll discover interesting facts and services, and lots of helpful credit advice. Another source is QSpace at 1-888-893-1002; website www.qspace.com. Or try www.quickenmortgage.com (see Resources section, later).

The last of the three questions is whether the home you want to buy provides adequate value to protect the lender's investment. But that's outside your control. The lender will organize an appraisal of the home (for which you will pay). If you managed to negotiate a good purchase price, and presuming the home was not grossly overvalued by the real estate agent (unlikely), this will present noproblem.