Why get pre-approved?
There’s never been a better time to buy a home than right now – real estate prices are at an all-time low and the government has sweetened the deal with new incentives for first-time homebuyers. But before you start attending open houses and planning how you’ll arrange the furniture in your new living room, you need to take the first step in the home-buying process: getting pre-approved for a mortgage.
So why bother to get pre-approved? Shouldn’t you find the house you want to buy first? Mortgage pre-approval has a number of benefits. First, the pre-approval process may uncover errors on your credit report that you hadn’t noticed before, errors that may be hindering your ability to qualify for credit. In addition, mortgage pre-approval will show you exactly how much house you can afford, so that you don’t fall in love with a home and then find yourself unable to get a mortgage.
Choosing a lender
Your lender will be your ally throughout the process of purchasing a home, so it’s important to choose the banker and the lending institution that are right for you. Typically, most people start with their own banks or credit unions, although there are plenty of other options out there. If you aren’t able to get the best loan terms at your own bank, a private mortgage lender may be able to help. These companies exist for the sole purpose of making mortgage loans, so they often have access to more specialized lending programs that you may qualify for.
Meeting with the lender
When you call to schedule a meeting with your chosen lender, the office will let you know what kind of documentation you’ll need to bring in. Depending on the lender’s requirements, you may need to bring in pay stubs, tax returns, and other evidence of income such as child support or investment returns. In addition to the documentation you provide, your lender will obtain a copy of your credit report. In most cases, the meeting will conclude with the lender giving you an estimate of how much mortgage debt you qualify for.
Taking the next steps
If you’re satisfied with the mortgage amount your lender prequalifies you for, your next step is to start looking at houses. Your realtor will use your pre-approval to identify houses that you can afford and as a negotiating tool with sellers and listing agents.
If, on the other hand, you feel that you should qualify for a larger mortgage, ask the lender what you can do to improve your financial position. It could be that your low credit score is holding you back from getting a mortgage in the amount you want. If this is the case, paying down the balances on some of your credit cards could improve your score enough that you qualify for a larger mortgage. Or, if the credit report your lender obtains has errors, you may want to get them corrected before proceeding with your search for a home.