Step 2 In Buying A Home - Mortgage PreApproval!
You finally found the Realtor that you want to help you buy your home! You have had interviewed the Realtor and really like him/her. Now you need to move on to Step 2 - getting pre approved for the mortgage you need to buy the house.
So what is pre approval vs pre qualification - and which is better?
There is a big difference between pre approval and pre qualification! Pre qualification only means that you talked to a lender and gave them some information about your income and debt, but nothing has been really verified, and that lender may not even have pulled a credit report. Pre approval, on the other hand, means that the lender has looked at your credit and income, they have verified your income and based on what they have seen, you are approved to carry a mortgage at a certain amount and at a certain interest rate over a certain period of time!
When I talked to my buyers during our initial buyer meeting, I always recommend that they go out and get pre approved, not just pre qualified, by their mortgage lender, even before we have gone out looking at houses! Why?
YOU DON'T WANT TO LOSE OUT ON YOUR DREAM HOME!
In today's real estate market in Richmond, homes in many areas are going under contract very quickly, sometimes the first day or two! And many of these transactions have multiple offers on them! If the home you find is one that just came on the market, is priced well and potentially has multiple offers you want to make sure you are able to make a strong offer on it! Part of a strong offer is a strong pre approval letter from your lender! You definitely don't want to lose out to another buyer who has already gotten their strong pre approval letter while you are now scrambling to get that letter!
YOU WANT TO KNOW WHAT PRICE YOU ARE COMFORTABLE PAYING FOR A HOME!
When you are buying a house, you are most likely going to have a mortgage to pay! There is a monthly mortgage payment that you are comfortable making each month. Talking to the lender and knowing what that price is that gives you the monthly mortgage payment you are comfortable with ensures that you won't look at houses priced above your comfort level!
YOU WANT TO KNOW YOUR UPPER PRICE LIMIT!
By knowing what the maximum price is that you qualify for means that, if you aren't finding homes at the price point you are comfortable with, then you can potentially bump up your price, as long as you qualify! So, for instance, if you are comfortable with a price of $200,000 but you qualify for $250,000, if you are not finding the home you want at the $200,000 price point, then you can choose to continue looking until you find something at $200,000 or under, or you can choose to bump up your price a little bit at a time, to say $220,000! The choice is yours!
YOU NEED TO KNOW HOW MUCH MONEY YOU WILL NEED FOR CLOSING!
If you are a first time homebuyer you may have limited funds available. Sometimes we are able to negotiate the seller paying some or all of your closing costs, but there is no guarantee. Talking to the lender will let you know how much money you will need for closing, which then allows us to determine how to structure your offer on the house! Perhaps you need the seller to pay closing costs - we need to know that to put in the offer! Perhaps you are only able to do a minimum down payment - we need to know that! If it turns out that you won't have enough money at this time to make your move, you need to know that so that you can perhaps put off looking at houses for a little bit longer!
YOU NEED TO KNOW WHAT TYPE OF LOAN YOU WILL BE GETTING!
Different types of loans will have different requirements! And there are lots and lots of different loan options out there for a buyer to choose from. There is FHA, VA, Conventional, Fannie Mae, USDA Rural Development, VHDA for first time homebuyers, jumbo loans for high end buyers! There is grant funds out there for first time homebuyers! Not all lenders offer all the programs, some lenders are better for one type of buyer such as the first time homebuyer than another lender may be. There are some lenders who have in house loan programs that other lenders don't have! And appraisal guidelines may be different depending on the type of loan! Knowing the type of loan you are getting before you begin to look means that we can keep the loan requirements in mind when looking at homes to make sure that the property does comply with those requirements!
IF YOU ARE A FIRST TIME HOMEBUYER, REMEMBER TO ASK ABOUT DOWNPAYMENT ASSISTANCE PROGRAMS!
If you are a first time homebuyer, there may be grant money to assist you with your down payment on a house! Don't forget to ask your lender about these programs and if you qualify for them!
IF YOU ARE DOING RENOVATIONS IN THE CITY OF RICMOND, REMEMBER TO LOOK INTO TAX ABATEMENT OPTIONS!
The City of Richmond has a great tax abatement program that will allow you to recoup some of the money that you will put into renovating the home you are buying! If you are purchasing a property in the City of Richmond, click here to go to the City's website and find out more information!
When you speak to the lender, they will want some information from you in order to complete the pre approval:
· A completed loan application - many lenders have secure websites that will allow you to complete this online!
· Information on any assets you listed on your application - checking, savings, 401K, investments!
· Most recent paystub or if self employed they may require an Income & Expense statement year to date!
· 2 Years tax returns!
· Other information as needed!
Should you shop around for a good lender? Yes! But make sure that the lenders are not pulling your credit report each time! I don't know exactly how the FICO scores are calculated, but you definitely don't want each credit pull to affect your credit score! However, having said this, different lenders do charge different fees and interest rates and loan programs and options for you! Talk to at least 2 lenders! And if you don't know a lender to talk to your Realtor should be able to refer someone to you!
Questions about the pre-approval process? Feel free to contact me at 804-869-1191 or email me at BReagan2@gmail.com!