The Freeman/Davis Home Team with the Wolborsky Group at Allen Tate Realtors works with investors as well as our clients who select us to assist them in finding the right home in which to live. In either case, you can confidently turn to us for expert advice. www.HomeSearchRALEIGH.com has complete search functions for all properties listed in the area. When it’s time to take a look at your selections, call us or email us for a personal showing and complete buyer representation.
Thinking about buying your first home or your next one or an investment property? Today’s low interest rates, lower home prices and great selection are certainly motivating factors for a home purchase now. Remember, though, shopping for a home before you are pre-qualified for a loan is like putting the cart before the horse. The same can be said about writing a contract to buy a home if you aren’t pre-approved for a loan.
The first step in preparing to buy a home is understanding how and why lenders loan money. They’ll want to know where you stand financially, so you should figure this out before you do anything else. You need to determine how much money comes into your household each month — and how much goes out.
Step 1: Where You Stand
First, calculate all your total monthly gross income. Watch for ways to count more than just your regular pay. Sources of “hidden” income may include a raise that’s due before your first mortgage payment; a history of bonus income; a history of overtime income; and income from investments and rental property. If you receive child support or alimony, these can also be included.
Then make note of all your monthly debts — credit cards, student loans, car payments, etc. Do not include bills for monthly household expenses, such as utilities, groceries, telephone, transportation and so on, as they are not considered in your debt/income ratios.
Now write down any assets you could use for a down payment and closing costs: savings, gifts from a relative or friend, stocks and other investments. Be sure to budget some money for an emergency fund.
Now that you have a working snapshot of where you stand financially, the next phases deal with pre-qualification and pre-approval.
Step 2: Pre-qualification
Pre-qualification is simply a verbal exchange in which the lender estimates how much money a buyer can afford to borrow. The lender looks at your statement of income and debt and, assuming no extenuating circumstances, determines how much money you could afford to spend on a mortgage. This is called “pre-qualifying” and will only give you a guideline. Once you have a rough idea of how much you can afford, it is a lot easier to go home shopping (qualified loan amount + down payment = affordable price range). While writing a purchase offer with pre-qualification is better than doing so without, there is still another step you can take.
Step 3: Pre-approval
When it comes time to actually purchase a home, the lender you choose will start verifying all the information on the loan application and may find some inaccuracies in your application or some problems in your credit file that even you didn’t know about. If this happens, settlement could be postponed or even canceled altogether. Being pre-approved before making a purchase offer, however, can prevent such delays and headaches.
A loan pre-approval is a commitment from a lender to provide you with a loan for a specified amount — assuming the home chosen meets the lender’s requirements and your financial picture doesn’t change before settling/closing on the home. Pre-approval means the lender has verified everything you put on the application: income, employment, debts, credit history and more.
When you’re pre-approved for a loan, sellers have peace of mind that financing problems will not ruin the deal at the last minute. A seller is more apt to go with pre-approved buyers than with buyers who don’t really know if they can even get a loan. The home shopping process is simply easier once you’re pre-approved.
Ready to get started? Contact us today and we’ll be happy to provide a list of reputable lenders our clients have had positive experiences with.