10 Step Guide to Buying a House – Step 3
Step 3 – Get a Mortgage Pre-Approval
There is nothing worse than falling in love with a home and then finding you can’t afford it. Consulting with a mortgage lender is the FIRST step you should undertake in the home buying process. When you’re armed with the knowledge of what you can afford and what kind of loan you qualify for it focuses your search and allows you to make a move when you find the right home. Keep in mind that you may be able to afford more than you want to spend.
What Is a Mortgage Pre-Approval?
Lenders offer borrowers either a pre-qualification or a pre-approval letter. A pre-qualification states the amount a lender thinks you’ll be able to borrow based on your income and credit profile without any actual documentation.
Mortgage loans these days all require full documentation and certification of income and assets, so many sellers will only accept an offer from a buyer with a full pre-approval letter based on verified information.
You will benefit from a pre-approval for 2 main reasons
- First, you will have completed the credit check and paperwork requirements, so you will know your ability to finalize a home purchase. *If the lender finds a problem with your credit or an error on your credit report, you’ll have time to fix it before making an offer.
- Second, since your documentation will already be in place, a mortgage pre-approval will likely speed up the process once you make an offer.
How to Find a Mortgage Lender
You can look around online and find lender profiles, but you don’t always know who you’ll find or their experience.
Your Realtor should be able to recommend a few lenders to you for you to interview. Most seasoned realtors have lenders that they are comfortable working with because they know, based on past experiences, the quality of the lender.
***Recommendations and referrals are also a great place to start.
As a first time buyer, you could call a few lenders to find someone experienced with first time buyer needs and possible special loan programs.
It’s important to note that depending on the type of home you’re purchasing and/or program you’re using, different lenders may be better than others. For example, some lenders do not lend under a certain loan amount, some lenders do not have much experience in foreclosure lending, some lenders are experienced with rehabilitation loans. It’s not always a one size fits all when it comes to a lender and it’s important to work with someone experienced in the type of home you’re hoping to purchase.
What to Expect From Your Lender
The best lenders explain all of your loan options. They should give you feedback on how to improve your credit and make recommendations on how to handle your money between the time you apply for a loan and the settlement day.
Your lender should provide advice about when to lock in your loan rate and discuss the pros and cons of various loan programs.
What Your Lender Expects From You
Your lender needs you to be homes about your finances and responsive to requests for additional information. The more cooperative you are with a lender, the easier the loan process will be.
You should be prepared with tax returns, w2’s, bank statements, employment information and your current landlord information.
Your lender will generate a mortgage approval based on your debt-to-income ratio and credit score, but you should also consider your budget and your own comfort level with the payment amount.