A home is one of the biggest, most important investments you will ever make. Looking for a home is such an exciting time, but it can also be incredibly stressful. There are so many pieces to the puzzle that it can be overwhelming. That is why a good REALTOR® (call me first – I couldn’t resist throwing that in) is especially important. They should be able to guide you every step of the way. Here is some information that will help you to be more successful in finding your right home. Over the next several articles, I will be discussing the steps involved in buying a home: getting pre-approved for a mortgage, choosing your REALTOR®, finding a home, inspections, appraisal and closing on your home. In this first article, I will discuss Step 1:
Getting Pre-Approved for a Mortgage
I want to start off by saying finding a REALTOR® even before you start the mortgage process is a good idea. They can help guide you in choosing the right lender, if you don’t already have one. Either way, getting pre-approved is not only important, it is necessary. It will not only help you decide how much you can afford, but how much you would like to spend on your monthly mortgage payment. Just because you can afford a certain amount doesn’t mean you should take on the debt. Your lender can identify issues that need to be worked on early in the process.
The pre-approval letter from your lender helps you to determine the maximum amount you are qualified to borrow. Remember, though, once you get the letter, it is not a loan guarantee, but it will let you know how much money your lender is willing to lend you. These days, you cannot even put in an offer on a home without it. Pre-approval letters also come with an expiration date, so be sure you know that date because you may need to reapply.
It is important that you work with a good lender because they, like your REALTOR®, will also be with you every step of the way, including right up to closing day.
To get pre-approved, you will need to complete the lender’s application (most likely online) which may include providing them with important financial information such as income (paystubs, 1099s, etc.), work history, bank statements, assets (including savings, investments, etc.), your credit report, debt, residential history and how much down payment you are planning to contribute to the buying of your home. Once the lender receives all this information and you complete the loan application, your lender will determine if you qualify for a loan.
If you are approved, your lender will send you a pre-approval letter that lets you know the maximum amount you can borrow. Your REALTOR® will ask for this letter from you or your lender. Remember, as I mentioned before, it is a maximum, but not necessarily the amount you should borrow. Especially in the times we live in, most experts recommend that you have at least three to six months’ emergency fund (or even more) just in case you lose your job. The last thing you want to worry about is losing the home you worked so hard to purchase. Your comfort level can only be determined by you and your family. It is an important conversation to have.
If you are not pre-approved, your lender can give you tips on ways to get approved, like helping you raise your credit score, paying off some debt or simply to save more money for a down payment or closing costs. It might take you another year, but don’t get discouraged. It is certainly worth the wait. I have also written an article (which you can see in this blog) entitled, “What Not to Do Before Buying a Home”. It can help you start thinking of ways that will better your chances on getting approved to buy your dream home.
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