Thinking of purchasing a home but don’t know where to start?
Before finding a Realtor to show you homes of your dream you’ll want to know what price range to look in. Many of my clients have been surprised at how much more they qualify for than they expected or want to spend.
Three Financial Steps to Purchasing a Home:
1. Pre-Qualification: Easy, no cost
* Getting pre-qualified is the initial step in the mortgage process, and it’s generally fairly simple.
* You supply a bank or lender with your overall financial picture, including your debt, income and assets.
* After evaluating this information, a lender can give you an idea of the mortgage amount for which you qualify.
* Pre-qualification can be done over the phone or on the internet, and there is usually no cost involved.
* Loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home.
* Discuss any goals or needs you may have regarding your mortgage with your lender / Mortgage Broker.
* Review with Lender/ Mortgage Broker mortgage options
* Your pre-qualified amount is not a sure thing; it’s just the amount for which you might expect to be approved. For this reason, a pre-qualified buyer doesn’t carry the same weight as a pre-approved buyer who has been more thoroughly investigated.
2. Pre-Approval: More involved, small cost
* You’ll complete an official mortgage application (and usually pay an application fee)
* Supply the lender / mortgage broker with the necessary documentation to perform an extensive check on your financial background and current.
* Lender / broker can tell you the specific mortgage amount for which you are approved.
* You’ll also have a better idea of the interest rate you will be charged on the loan and, in some cases, you might be able to lock-in a specific rate.
* You will receive a conditional commitment in writing for an exact loan amount, allowing you to look for a home at or below that price level.
* AFTER pre-approval is the time to start working with a Realtor who can help you find your dream home.
* Once you have found the right house for you, you’ll fill in the appropriate details and your pre-approval will become a complete application.
Advantages of Completing BOTH steps before looking at a homes?
* Before you start to look for a home is that you’ll know in advance how much you can afford. This way, you don’t waste time with guessing or looking at properties that are beyond your means. Getting pre-approved for a mortgage also enables you to move quickly when you find the perfect place.
* When you make an offer, it won’t be contingent on obtaining financing, which can save you valuable time. In a competitive market, this lets the seller know that your offer is serious – and could prevent you from losing out to another potential buyer who already has financing arranged.
* Pre-Qualification and Pre-Approval are not the same. Being pre-qualified does not mean that you will be able to secure a loan. Pre-approval is your best bet for ensuring you will get a loan for your dream home.
3. Loan Commitment: Final Approval
* Occurs just days before you close on your home and move in (loan commitment date on the contract will be from 2-7 days before closing date)
* Only issued by a bank when it has approved you, the borrower, and the house in question.
* The home should be appraised at or above the sales price.
* The bank may also require more information if the appraiser brings up anything he or she feels should be investigated (i.e. structural problems, accessibility issues, outstanding liens or litigation in progress).
* Your income and credit report will be checked once again to ensure nothing has changed since the initial approval.
* From Pre-Approval until you have closed on your home do not make any major purchases (like a car) or open any additional credit cards or lines of credit. These will effect your ability to get a loan commitment.
* A loan commitment letter is issued only when the bank is certain it will lend.
Source:
Additional Resources:
* What does a credit report mean?
* The Importance of Your Credit Rating
* Mortgages: How much can you afford?
* Definition of a First-Time Homebuyer
* $8000 First-Time Homebuyer Tax Credit
* $8000 First-Time Homebuyer Tax Credit as a Down Payment
* Top 5 Location Criteria for Purchasing an Investment Property
My Personal Recommendations:
* Eric Peltier: Mortgage Broker
* Mike Delzer: Mortgage Broker
* Bridget Slevin: Colorado Real Estate Agent
If you would like me to personally introduce you to one of these fantastic real estate service providers or have them contact you, please email me Jen [at] eco-modpod [dot com]
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