The Path to Pre-Approval
Homeownership. Does that word make you excited? Terrified? Are you shaking your head and thinking “maybe for some people but not for me.” But secretly, somewhere in the back of your mind, the dream of reaching that milestone has always been there. The idea is nagging at you while you write your monthly rent check. You visualize growing your family in a suburban home. You imagine yourself downtown in your own trendy townhouse or sipping coffee on the front porch of your charming cottage. You scroll through Pinterest gazing at home decorating ideas and landscaping options. You wonder if you could actually do it. Could you actually purchase a home?
Finding the answer to that question starts with reaching out to a mortgage lender. You may be tempted to just start looking on an app or going to open houses, but making sure you know what you can afford will save you much heartache in the long run. Imagine finding the perfect home online that you think you can afford. You call the number because you’re so excited and just have to go see it. One of the first things the agent asks you is “are you pre-approved?” What?? You just wanted to go look at this fabulous house. But what you didn’t realize, is that homeowners selling their homes expect prospective buyers to be pre-approved for a mortgage, and many real estate agents won’t show a home to buyers who don’t have one. A pre-approval will be an indication to the homeowner that you are a serious buyer and not just someone looking around.
Talking to a lender first will educate you regarding the process. They will discuss loan options and budgeting with you to help you determine how much you are willing and able to spend on a home purchase. The lender will set you on the path to pre-approval and eventual homeownership through the following steps:
Planning for your journey - If you have already connected with a real estate agent to help you through the process, have them recommend a few mortgage lenders they know. You will be forming a tight trio throughout this process... you - your buyer’s agent - your mortgage lender. It is in your best interest to have a local lender who works well with your agent and will be available to you when you need quick documents and answers to questions. Your mortgage lender can pre-qualify you by asking questions over the phone, but the pre-qualification is not as strong as going through the pre-approval process.
Starting out the door - You will need to come prepared for your meeting with the mortgage lender by bringing the following: your Social Security numbers, employment information, bank information, and proof of income (pay stubs, W-2s). Seems like a lot, but being organized with your financial information will save you time and reduce your anxiety. Apps and electronic record-keeping programs make this much easier. Two years of continuous employment are preferred, although there are sometimes exceptions to this.
Setting out on the path - A lender will run your credit report to determine your credit score, credit history, and to determine how much current debt you have (ex: student loans, auto loan, credit cards, etc.) and basically just to make sure you don’t have any financial skeletons in your closet. Errors can and do occur! My husband and I were delayed in our progress once because a defaulted student loan was accidentally attributed to his credit report. Someone simply entering numbers incorrectly can be disastrous to your credit! Completing this step early can alert you to anything that needs correcting and give you time to remedy mistakes.
Cresting the hill - Determining your debt-to-income ratio is the next step. This may sound complicated, but it is simply determining the percentage of your monthly income that goes toward paying your debts. This will tell the lender the amount you are able to pay monthly for a mortgage payment. Lenders prefer borrowers with a debt-to-income ratio of 36% or below (including the mortgage). Knowing your debt-to-income ratio is like having a budget. You can’t spend more than you make, and you need to have some left over for fun!
Rounding the corner and heading for home - With a mortgage pre-approval completed, you can now confidently begin your home search knowing you are ready to make an offer on the one you love. You are ready to begin working with your buyer’s agent to narrow down your wants and your must-haves, and when you find the home that feels right, that you can see yourself growing into...you will be equipped with the pre-approval needed to make an offer.
