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Mortgage pre-qualification is an extremely important step in buying a home. In Virginia, to submit an offer to a homeowner to purchase their home, you will need to include a pre-qualification letter from a lender stating how much of a home you can afford and the terms of the mortgage.

A mortgage pre-qualification is usually based on an informal evaluation of your finances including salary and debt-to-income ratio, and credit history. You tell the lender about your credit, debt, income and assets, and the lender estimates whether you can qualify for a mortgage and how much you may be able to borrow. This letter does expire so be sure to check, usually the letter is good for 90 days. If you have done your homework and are confident that you are eligible for a mortgage, you may skip the pre-qualification step and go straight to pre-approval.

It is recommended that you have your pre-qualification or pre-approval letter ready when you start touring homes. It is not unusual for homes to go under contract in a day. If you are not ready, you may miss out on a chance to get your dream home.

If you are thinking of buying a home, consider completing these steps before contacting a lender.

  1. Credit Score. Check your credit score. It is recommended that you have at least a 620 credit score before talking to a lender.
  2. Credit Report. Get your free credit report. You are allowed a free credit report each year that does not affect your credit. Check Experian and Transunion. There are others as well. Be sure to look for mistakes and work to get them fixed.
  3. DTI. Calculate your debt-to-income ratio (DTI). Most lenders prefer borrowers with a DTI of 36% or below, including the mortgage, though it can be higher.
  4. Paperwork. Get your paperwork in order including W-2 tax forms, 1099s if you have additional income sources and pay stubs. Two continuous years of employment are preferred but there are exceptions. Self-employed individuals will probably be asked to provide two years of income tax returns.
  5. Downpayment. The amount of the down-payment you will need depends on several factors. While traditionally, lenders have asked applicants to have at least 20% down-payment, this is changing. Veteran Affairs loans does provide mortgages with zero down payment. Some lenders will accommodate just 5%, on a case-by-case basis.
  6. Shop Around. Contact at least two (2) lenders to get the best possible rate and conditions. It’s worth the extra phone call.

Bottom Line: Most people considering home ownership are probably already off to a good start. Don’t delay in getting everything in order and increasing your chances of getting the home of your dreams.