Probably the most misunderstood aspect of buying a home is that working with your lender must be the first step in the process. Your lender will be able to work with you to evaluate your financial position AND your objectives to find what type loan product will be most appropriate for your situation. Many buyers do not realize that there are some homes that can’t be sold using a particular loan product.
There are two initial steps when working with a lender. The first step is to get pre-qualified. The objective of this step is to understand how much you can afford spend monthly on a mortgage, what steps you can take to improve your credit, how much cash you can anticipate needing to purchase a home and what loan type would best fit your main objectives. This usually doesn’t require a “hard inquiry” of your credit and can be done very quickly many times just over the phone.
The second step is to get pre-approved. The pre-approval process does entail a “hard inquiry” of your credit, and providing some basic financial documentation like a few months of pay stubs & bank statements. While this step occurs prior to your finding your next new home, a specific pre-approval will be created for each offer that you will make on a home.
Many people are very concerned about making “hard inquiries” on their credit as this will impact your overall credit score. However, all inquiries made within 45 days of purchasing a home for that purpose are considered only one inquiry when calculating your credit score. It is important to keep those dates top of mind as the negotiation and closing processes may take longer than that time-frame.