Make Sure You’re Prepared
It’s home buying season! While interest rates have risen slightly, they continue to remain low which has fueled buyers to look for homes. Currently, we are seeing the demand for homes listed for sale exceeding supply, so it is important you are properly prepared to start the home buying process.
Most often buyers look for a home before contacting a lender to be pre-qualified or pre-approved for a mortgage; however, it is important to know how much of a home you can afford to buy before you begin the search. Buyers need to realize how much money will be needed for a down payment and closing costs as this impacts the amount for which you will be approved. Many times, people qualify for a higher price home based on income, but do not have the adequate funds for down payment and closing costs and realize too late that their “dream home” is, in fact, out of reach.
Unless you can make an all-cash purchase, it is important to be pre-qualified or pre-approved for a mortgage before you begin to look for a home. This will show you are a qualified buyer and allow your realtor to offer a copy of the pre-qualification or pre-approval letter to the sellers.
What is the difference between Pre-Qualification and Pre- Approval?
For a pre-qualification, a tri-merged credit report is pulled which is a credit report from all three credit bureaus consolidated into one. Most often the information needed is obtained in a phone call between the borrowers and the mortgage consultant. Based on this verbal conversation, the consultant can work the numbers and issue a pre-qualification. This is done without seeing documentation proving the borrowers’ income and assets. Instead, the pre-qualification is provided based on the information provided, which will be verified when you apply for the mortgage. In most cases, a pre-qualification can be done quickly, usually within hours.
For a pre-approval, there are additional steps taken. Like is done for a pre-qualification, borrower information is obtained, and a credit report is pulled. In addition, all supporting documentation is collected such as recent pay stubs, W-2’s, tax returns, bank statements, driver’s licenses, etc. These are processed and underwritten which provides the seller and realtors with confidence the pre-approval is accurate, and it is likely the sale will go through.
Another benefit of getting pre-qualified or pre-approved is that you will know what your monthly payment will be. To calculate the amount of your pre-qualification or pre-approval your total housing debt needs to be determined. This includes estimates for annual property taxes, homeowners’ insurance, and mortgage insurance. These expenses are then added to the anticipated monthly principal and interest mortgage payment to determine your total monthly cost. Knowing this figure can help you determine what will work for your budget. You can then shop for homes in the price range with which you are comfortable.
One thing to keep in mind is that property taxes can vary greatly depending on the county, city, borough or township and school district in which the property is located. When looking at homes always ask your realtor how much the taxes are on each property even if you are looking at homes in a similar price range all located in the same general area. Borough and township lines as well as school districts often divide neighborhoods and can impact taxes for similarly priced homes just a street or two apart.
Purchasing a home is likely one of the largest purchases you will ever make. While it can sometimes feel like an overwhelming process, working with the right mortgage consultant can help alleviate some of the stress and anxiety. Do not hesitate to ask questions, and then more questions, until you fully understand the details of mortgage for which you are applying. Your mortgage consultant should explain the process and be happy to answer questions. If you are ready to begin your home search, please contact me at 484-347-2586.