Whether you’re ready to step out from apartment living and purchase your very first home, or you’ve owned many properties in the past, and you’re simply downsizing and want to buy a new home that better fits your current lifestyle, you’ll likely find many wonderful properties on the market; however, before you even get to the point where you begin to look at homes and dream about which one would best suit your needs, it’s important to make sure that you get your finances in order.
Maybe you’ve been saving for years and have been diligent about making your rental payments on time, so you have very little worry about being accepted for a mortgage for your new home. While this might be a very good start, it certainly doesn’t take the place of getting pre-approved for your real estate purchase.
There are many reasons why pre-approval from your mortgage lender should be your first step in buying a home. For example, meeting with a lender and going through the pre-approval process will not only demonstrate that you are ready to move forward with your plans for investing in a new home, but it can also show you exactly where you stand when it comes to financing this purchase. It can be all too easy to think you will qualify for more than you actually will; similarly, you might be surprised to discover that you are eligible for more home than you thought possible.
There are a number of financial decisions that must be taken into account when you are planning the purchase of any type of real estate. For instance, lender approval will be based on how much money you make, how stable that income source is, your past credit history, especially as it pertains to making rent and mortgage payments, how much money you have saved, and the amount of money needed to finance the property you wish to purchase.
Of course, regardless of how much financing your lender is willing to provide, it’s also important for you to determine how much of your monthly budget you are willing to put towards your mortgage payment. If you are coming from an apartment or if you’ve never owned your own home before, it’s important to keep in mind that owning a home comes with expenses you might not have thought about. For example, in addition to insurance payments, you’ll also need to maintain a budget in order to take care of other household expenses, such as replacing HVAC equipment, landscaping, general maintenance and repairs, as well as the eventual need to replace the roof. These are items that you should plan and budget for so that they don’t come as a surprise and financial burden when the time comes.
It’s also important to think about your particular lifestyle before committing to a housing budget. Even if your bank pre-approves you for a given amount, you should take a long hard look at your lifestyle in order to determine what you personally feel comfortable spending. Remember, the amount your lender is willing to finance doesn’t take into account all of your activities. The lenders qualification amount is a figure that safely allows you to meet your monthly financial obligations; however, these financial obligations are generally just the bare bones finances. If you are the type of person who likes to take regular vacations, eat out several times a week, or you have a healthy clothing budget, the amount of money you could comfortably put towards a mortgage might be less than what your bank is willing to qualify you for.
Another factor to consider when applying for pre-qualification is the fact that a pre-approval letter from your lender is an excellent indication to your real estate agent and property sellers that you are not only a serious buyer, but, that you are also qualified. You can waste a great deal of time and energy looking at properties that you might not be able to qualify for. With pre-qualification, you’ll be able to focus your house hunting on properties in the price range that you’ll qualify for. After all, who wants to fall in love with a home only to discover that you don’t qualify for a mortgage and you must begin your search all over?
Prequalification not only helps to eliminate wasting time looking at properties that don’t meet your financial ability, but many real estate agents will be more willing to dedicate time helping you find your dream home if they know you are serious and qualified to make the purchase. Additionally, if you put in a purchase offer on a property, the seller will know that you are a serious and qualified buyer, this might make them more willing to negotiate on price or terms because they already have a good indication that the deal won’t fall apart because of financing issues.
If you are considering purchasing real estate, it just makes sense to get pre-approval for your mortgage before you begin your search. This is just as true for the first-time homebuyer as it is for someone who has owned their home for several years. Financing a home has changed a great deal in recent years and the heavily regulated mortage market can be quite different than when you purchased you last home. On top of changes in how mortgages are regulated, homeowners often forget about how their finances have changed over the years.
Maybe you have co-signed for your son or daughter’s new car or you’ve taken out a home improvement loan, or maybe you’ve recently retired and your income is significantly lower now than it was when you purchased your last home. So many different factors can determine how much you qualify for; so, taking the guess work out of your house hunting experience is an important step towards getting prepared for your next real estate purchase. To make it even more convenient for you to get pre-qualified, many lenders now let you begin the process either over the telephone or online.