Step 1 - Get Pre-Approved, not just Pre-Qualified.
Purchasing real estate does not need to be complicated. And it should not be expensive. Let us introduce you to Homsby, a virtual real estate brokerage that’s boldly changing the status quo. We provide homebuyers, like you, the support and services you need and want, for a flat fee. At close, we collect the commission your traditional buyers’ agent would be paid, we subtract our flat fee, and then refund you what is left over. Sound too good to be true.It’s not.
During this multi-part series, we’ll be breaking down the home buying process to show you how Homsby uses technology paired with our experienced agents to empower you to buy a home with confidence while saving your hard-earned money. Consider Homsby your personal real estate guide.
Step 1 — Get Pre-Approved, not just Pre-Qualified.
Unless you’re able to buy the home with all cash, obtaining a mortgage is the single most important step in buying a home. This means a lender will eventually become a critical piece to allowing you to buy a home.
Before searching for the home you want to buy, you should start by contacting a lender. You could start with your existing bank and their home loan department, mortgage broker in your area or go online and find a lending institution that specifically concentrates on mortgage lending. Or you could investigate a bridge lender who might qualify you to make an all cash offer to win the house and then fund a permanent loan after they close for you. There are also companies that will purchase on your behalf and let you rent back until you can buy them out with more permanent financing at a prearranged price down the road. Point is, there is a lender for almost everyone and every situation. Homsby has relationships with all types of these Lenders. Schedule a call with a Homsby agent who can help you position yourself for success.
Your objective here is to get a Pre-Approval Letter and not just pre-qualification information. Pre-qualification is a guess, where a Pre-Approval Letter is based on actual verification of your current income,assets and credit. Pre-Approval will allow you to understand what your budget can afford in addition to the loan products you are eligible for based on your debt-to-income ratio. A Pre-Approval Letter provides you with credible information you can use to search for a home in your budget and immediately make a strong offer with financial validation.
The Pre-Approval process will take longer than the pre-qualification process but is confirmation rather than a guess. You should expect to:
- Authorize your credit to be pulled
- Verify your employment (past employment maybe required. Self-employed buyers may need to provide additional documentation and explanation)
- Document income for the last 2 years (W2, recent pay stubs, tax returns, alimony, bonuses, etc.)
- Provide statements of your assets (bank accounts, investment accounts, IRAs, 401ks, etc.)
- Identify your monthly debt payments (student loans, auto loans, credit cards, mortgages, etc.)
- Provide additional documentation (driver’s license, 12 months of rent payments if renting, etc.)
The lender will review all this documentation in finalizing your Pre-Approval Letter, coming up with a total loan amount you would be approved for as well as the monthly payment associated to that loan balance given their current interest rates.
The lender may approve you for a mortgage that comes with a$2,500 monthly mortgage payment; however, you may not want to spend that on a monthly basis. This is why you should work on coming up with a realistic monthly budget you wish your mortgage payments to be at (Principal, Interest,Property Tax, HOA, Homeowners Insurance, etc.) & what you’re willing to put down as a down payment (note, less than 20% will require an additional monthly cost known as mortgage insurance). You can compare your personal budget with the one the Lender provides and ask them to make any adjustment to fit your budget such that your Pre-Approval Letter matches your purchase expectations.Based on all this information, you can confidently begin your home search. If you every have any questions or want to adjust your numbers, do not hesitate to contact the lender that provided you with the Pre-Approval Letter. They’re always willing to help as they are also looking to win your loan business.
One of the more common questions asked: Do I need to have my spouse on the loan? The answer is no, you do not need to have them go through the pre-approval process or be on the loan. Your spouse only needs to complete the process if you don’t qualify for the loan amount you were expecting and their income can help (to afford more, for example), or if they want to be on the loan. Without being on the loan, they technically do not own the debt associated to the property on their credit. Why might that matter? Well if you want to purchase an investment property, cars, boats, etc. in the future, you can have your spouse make those purchases under their name for lending purposes potentially allowing for more credit opportunity. Having fewer people on any loan makes the transaction easier to process. What’s also interesting is that you can have your spouse on the title for the property but not on the loan. We’ll talk about that more in another article.