If you've been following along in our series, 4 Steps from Rent to Own, you know that we're breaking down steps to take in preparation for purchasing your first - or just your next - property. At this point in the process you've hopefully saved up some cash to put toward your down payment, checked up on your credit score to ensure it's where you want it to be, and found an agent you feel that you can trust to assist you. So is it time to go view some houses or what? Not quite yet. Before the real fun begins you must be pre-approved for a mortgage loan to certify what the price range is that you're working with. How exactly is this range calculated and who does it for you? That's what we'll answer for you in this final installment.
I want to begin by making the distinction between a mortgage pre-qualification and a mortgage pre-approval. Pre-qualification is not a required step but if you choose to utilize one it would come first. This step helps you gain an understanding of how ready you are financially to purchase a property by telling a lender about your credit, debt, income and assets. If you are feeling uncertain about your financial standing then you can skip this step and just straight to the pre-approval.
When it comes time for pre-approval you will meet with a trusted mortgage lender and they will pull your official credit report as well as assess documents to confirm your income, assets and debts. Now, understand that this is not guaranteed cash or the final loan - this is a an offer that is made under specific terms and expires after a set time period such as 90 days. It's important to try not to alter your finances too much during this period by doing things like applying for new credit or making other large purchases because you can still be denied at any point. Before the loan can close, an appraisal must take place on the property to ensure that you are not paying too much.
Before meeting with the lender you'll want to gather the necessary financial and personal information including employment details, bank and investment account info and proof of income. Two years of continuous employment is preferred but there are exceptions. Once the lender has done their due diligence, you will receive a preapproval letter which details the type and amount of the loan for which you're approved, as well as other details that may be important to your agent or a seller.
Finding a great lender doesn't have to be hard. I'd recommend speaking with your agent about lenders that they have worked with in the past and they will almost always have a list of people that they trust and will put you in contact with. Some may recommend that you speak with multiple lenders so that you can compare the rates that they offer.
This final step is important but once completed, the real fun of the homebuying process can begin - going to view properties. One of the best parts of my job is seeing the look on a client's face when they finally get to see potential properties after taking the time to properly prepare for the prospect of purchasing and when they find their match it is all so worth it. Hopefully this series proves helpful to you whether you're buying your first home, considering moving to a different property or just wanted to hear more about the journey to home-ownership.
