Even before you begin to look for your ideal home, it makes sense to not only apply for your mortgage in advance, but to carry out a whole series of related preparations.
With the help of Danell Riggs of Guild Mortgage in Prescott, we’ve put together some tips to help ensure you’re well prepared for this vital process.
Know Where You’re Headed – “I feel that it is very important to know exactly where you are currently so that you are able to work towards a home purchase with intent and direction!” says Danell.
“The very first thing that you should do if you are interested in possibly being a homeowner is to talk to a lender, review credit, income, assets and see what loan programs may be available to help now.”
Get Pre-Approved First – It makes so much sense to be pre-approved for a home loan before you even start to view homes. This establishes what you can comfortably afford to buy, focusing your home search and avoiding any disappointments down the line. Perhaps even more vitally, sellers treat offers from buyers who are pre-approved more seriously, and this can sometimes be the determining factor in securing a home, given the high levels of competition between buyers for a limited number of homes at the moment.
There is sometimes confusion among buyers between pre-approval and pre-qualification. They are not the same. Pre-qualification is an indication from a lender what level of borrowing you should qualify for, on provision of some basic financial information about you. But it is not a confirmation that you will be approved for a home loan. Pre-approval, in contrast, is a formal mortgage application and a far more thorough analysis of your situation including your current credit rating. As a result, the lender can provide you with a letter of pre-approval for a specific amount of borrowing. This is something that can be shown to sellers, proving to them that you can indeed afford to buy their home.
Danell says: “A mortgage pre-qualification – the simple approval – is meant to help you decide if you’d like to move forward with a home loan application. You and your lender will talk about your finances to help them give you loan options, estimate your down payment and look at the monthly expense to own a home.
“A pre-approval – the solid approval – happens once your documentation is sent to the lender, which allows them to provide you with a max loan amount. With this, you can confidently start shopping for you home!”
Monitor Your Credit Rating – With very strict debt-to-income ratios in operation by mortgage lenders, it’s absolutely essential to monitor your credit rating and do nothing that is likely to reduce it in any way. For example, taking out a car loan around the time of house purchase is usually a very bad idea and can very negatively impact your credit rating and greatly increase your actual borrowings, worsening your debt-to-income ratio.
Reducing the overall amount you borrow as much as is possible can really help your mortgage application. And when your loan is pre-approved don’t be tempted to immediately start borrowing more. Your lender will carry out a second credit check before the mortgage is provided, so your finances still need to be in excellent shape for that too.
And never forget that the better your credit rating, the less interest you’re likely to pay over the life of the home loan! A great incentive.
Know Your Living Expenses – If you’re a first time buyer, you need to be aware that home ownership does mean that you will have a range of expenses that don’t apply when you are renting, especially in terms of budgeting for home maintenance, property taxes etc. Your mortgage professional can take you through all the extra expenses and assist you in establishing a comfortably affordable level in your own situation.
Affordability should also take account of other regular costs that relate to your interests/life goals etc. Those are things only you will know, but they should certainly be included.
Have All Your Paperwork Ready – If you need to move quickly with your mortgage application, as often happens, it’s important to have all the paperwork on hand that a loan officer will need. Inevitably, applying for a home loan requires a considerable amount of formal documentation such as pay stubs, bank statements, tax returns, details of investments, credit card balances, details of other types of loan, etc., etc. If you don’t already have this information in a folder then start to compile one that helps to build a complete picture of your income and outgoings. Your mortgage professional will be able to identify all specific needs for you.
We hope the above advice is helpful to you.
Summing it all up, Danell comments: “Buying a home is not a matter of ‘yes’ or ‘no’, but rather ‘when’.
“If you are not able to buy right now, then by going through the pre-qualification process you will be able to understand exactly where you are today, know specifically what you need to work on going forward and have a target date to aim for.
“It is always an honor to head down the path of homeownership together! Do not let fear of talking to a lending professional keep you from pursuing your dreams! We are here to help.”
Danell can be contacted directly on 928-458-0507. The Hyland/Schneider Team would also be pleased to introduce you to her and to discuss all your real estate needs on 928-445-2100.