Getting a loan pre approval is step #1
Pre Approval is one of the most important steps in your journey to find your next home. It doesn't matter if this is your first home or your 5th home. Having a pre-approval letter is your ticket and will provide most of the information you're probably already asking yourself. E.g, *Can I buy a home, *What price home can I buy, *How much will my payments be, *How much money do I need out of pocket, etc. Here will go over the most important reasons why a pre-approval letter is vital to starting a stress-free home search. We will even show how having a pre-approval will save you time and help you avoid the headaches that many would-be homeowners run into.
A pre-approval is essentially a lender stating that you can purchase a home for a specific price based upon the qualifications. Those qualifications are based on your credit history, banking history, employment, debt and income history. It will also tell you what type of loan you qualify for.- which many people don't realize can also have an effect on what type or condition of home we need to look for.
Getting a pre approval is typically pretty easy. You can simply fill out an application online with your preferred lender. They will then contact you for a few documents and let you know what they have determined by the qualifications listed above. (if you don't have a preferred lender, please go to my "PREFERRED LENDERS " tab. I have a few there that I highly recommend!)
What exactly does the lender do to get you a pre approval? The lender will pull your credit report and look into the items mentioned above. The lender's process is to pull 2 of 3 credit reports from the big three credit reporting agencies, average these two scores and then use this average as your credit score. Lenders do this because not all creditors report to every credit reporting agency, so information found on one credit report may not be found on another. Averaging your credit scores gives them a more accurate figure to work with.
They will also look into your income amount and any debts. They will take these 2 into comparison, in what we call a debt to income ratio. Each loan type requires the buyer to only have a certain percentage in debt versus their income. This is one of the determining factors that help the lender in advising what type of loan best fits your needs. Some loans are a bit more stringent on that percent than others. But keep in mind, almost everyone has debt, that is understandable, so please don't let that make you nervous.
One thing to also keep in mind, don't be afraid to talk with a lender and see what your options are. So many times I hear people say I don't think my credit is good enough, then they are approved and so happy to be home owners. Applying with or talking to a lender is the only way to know for sure. And, sometimes there may only be one or two things that need to be adjusted on your credit or debt to get you approved, but you'd have had no idea if you hadn't taken this first step. So don't put it off!
At times, we do encourage shopping around. Some lenders have lower fees (which can save you money up front), some are able to get better interest rates (which can save you money over the life of your mortgage), there are many things to keep in mind. But one thing I always recommend is keeping it local. These big, out of state, "internet lenders" as we call them, have a reputation for making the buying process very unenjoyable. Local lenders usually work in house, and have a chair you can sit in and talk face to face. Rather than calling 1-800 numbers and possibly getting a new random person each time. I can't recommend using your trusted lender high enough. And please know, if you don't have a trusted lender, I DO! That is just part of what your Realtor is there for, to help guide, direct and get you in touch with their trusted professionals that they work with every day!
Here are a few examples of things they will ask for from you, so you might be prepared:
Two years of tax returns.
Bank Statements.
Paycheck Documentation.
If you are self employed they will likely need other forms of documentation, but that is always a case by case basis, so speaking with the lender will let you know.
Now, besides the reasons mentioned above of why it is #1 to get a pre approval (*Can I buy, *What price home can I buy, *What will my payments be, *How much money do I need out of pocket, etc.) It is also important for 2 more reasons. -It sets realistic expectations! It will keep you from wasting your time looking at homes that are beyond what you can qualify for via a loan or outside of your price range. AND, it keeps you from a possible heart break. Nothing is more heart wrenching than going and finding that perfect home and then finding out it may not fit into what you can buy. But even worse, the heartbreak of someone else buying it before you were able to get all this loan stuff taken care of fast enough. Having this pre approval done means you can offer as soon as you find that PERFECT ONE!!
Secondly, it increases the chance that a seller will accept your offer. Take a moment to think as a seller would. Suppose you are receiving several offers from many interested, potential buyers. Would an offer with a pre-approval attached not make you feel like this buyer is serious, can afford the house, and are ready to make this home into their own?!? Believe it or not, many people make offers on homes they have zero chance of ever being able to afford or to receive a loan for. Your pre-approval letter pushes you to the top of the line. One more thing to mention, many sellers add in stipulations that they request all who even view the home be pre approved. This decreases the amount of traffic through their home to only serious buyers. Many also usually 'require' the offers be accompanied by a pre approval letter, so they know they are not wasting precious time negotiating with buyers who are not even yet able to buy. So, in short, getting pre-approved gives you so many more advantages- knowledge of what to expect with the mortgage part of it, but also advantages in hopefully getting that perfect home!
In Conclusion, Getting that pre-approval is step number one! Please don't hesitate to call or text me to pick my brain on any of this. Or just go straight to my "PREFERRED LENDERS" tab and contact one of those great lenders that I highly recommend!!