Especially if this is your first time buying a home, the entire process can be super stressful. You’ve got to carve out time in your schedule to view homes. You’ve got to find a reliable agent to work with. And you’ve got to figure out how you are going to pay for everything.
No doubt the most challenging hurdle for homebuyers to figure out is the financial end of things. Just how much home can I afford? How much do I need to put down? What other costs are associated with closing?
One way to help better prepare for the financial side of finding your perfect home is getting pre-approved for a mortgage before you start house hunting too seriously.
What Is Mortgage Pre-approval?
When your bank pre-approves you for a mortgage, they look at your financial documents and history in order to determine how much of a loan you qualify for. For example, you’ll provide bank account statements, income verification, and other information regarding your finances, and the lender will run a credit check to determine your creditworthiness.
With all this information in hand, you’ll get pre-approved for a specific amount of money towards the purchase of a home, usually on condition of an appraisal and inspection. A pre-approval is different from a pre-qualification because it requires more information and gives you a more accurate picture of what type of home you can afford.
Provide a Realistic Picture of What You Can Afford
One reason that it’s important to get pre-approved before you start viewing home after home is so that you don’t disappoint yourself.
Imagine you spend weeks looking at $300,000 homes, find one you really love, apply for financing, and then find out that your bank won’t give you more than $250,000. You’ve wasted a lot of time, not to mention emotional investment. And you could have avoided it all by just getting pre-approved first.
Provide a Better Understanding of All the Costs
Getting pre-approved is going to do more than just tell you how much money the bank will give you. It’s also going to help you get a better understanding of all the costs involved in purchasing a new home, such as down payment and closing costs.
This way, you’ll know what the bank is going to cover so that you can find a way to make up the remainder on your end. For example, if the total cost of closing is going to be $270,000 but the bank will only give you $250,000, then you know that you have to pay $20,000 out of your own pocket.
Don’t Put Off Pre-Approval
Pre-approval doesn’t take long, but it does save a lot of heartache.
If you’re serious about buying a new home, get in touch with your bank or mortgage lender as soon as you can to get pre-approved for a mortgage. You’ll thank yourself in the end for having taken care of some of the most frustrating aspects of home buying from the very beginning.