Nail down the specifics of your purchase power before the search begins
UNDERSTAND THE NUMBERS
You've reduced debt and saved money, now its time for the fun part - shopping! Or is it? Some buyers take a guess at what the bank will lend them and start looking at open houses or setting up showings with a Realtor. That approach could end in disappointment. You may fall head over heels for a home only to find out it is out of your financial reach or, in a hot market, might not get a strong (pre-approved) offer in to the sellers fast enough.
An educated & serious buyer will complete the legwork and consult experts before jumping in. A mortgage broker can help you to precisely calculate your income, debts, and credit to and determine the amount you are able to borrow. They can also run the numbers to help you determine a purchase price range based on how much you want to spend monthly on a home. There are multiple levels of this process, the first being pre-qualification followed by a pre-approval. Pre-qualification is based on information provided verbally. Pre-approval is a more thorough analysis of your financial situation, which requires you to submit documentation showing assets, income, debts, and much more.
Another important aspect of securing a mortgage, is understanding the mortgage products available to determine which will be most advantageous for your specific scenario. A lender or mortgage broker can explain in detail the programs available as well as the benefits and restrictions of each. They can help analyze your financial situation to determine which loan options would be best for your specific situation.
The housing industry is a huge business. There are a variety of people and companies involved - from buying to selling, to photography to inspections, but most one of the most important pieces for a buyer when it comes to being able to purchase their home is the funding. There are big banks and local banks, online only banks, mortgage companies, and even lenders that specialize in certain types of mortgages like VA or FHA. There are also companies and individuals who are Mortgage Brokers. Their business and livelihood is 100% focused on mortgages. They act as a personal shopper for their borrowers, searching their portfolio of mortgage lenders to find the best deals available.
Start by deciding what you would like your purchasing process to be like and then do a little research to find a lender (or two) who compliments your personality and purchasing scenario. Do you want to be another number or do you want a personal experience? Do you want someone who can answer a lot of questions or do you know exactly what loan you would like and just want the fastest cheapest option? Do you want someone who knows the local real estate market and neighborhoods? Or perhaps someone from a nationwide company? It may help to talk to friends, neighbors or colleagues who had a good experience. Read reviews. This is an important decision... your lender or broker is who you will rely on to show you the best options for your purchasing situation. A difference of 1% in an interest rate will cost you for the next 30 years. Last minute or surprise fees can alter how much cash you need to bring to the table. Find someone you believe is knowlegable, experienced and trustworthy to act as your partner throughout this process.
You are allowed and able to shop around for a lender. Lenders know this is a part of the process and some may even compete for your business. Don't forget - most things that sound too good to be true, probably are. "No closing costs", likely means a higher interest rate. If one fee is "waived" another may be increased. Interest Rates can be bought down, but they also fluctuate daily, similar to the stock market. Comparing loans and fees can get confusing. What can help, is that lenders are required to show the "APR" for the rate, which is the interest rate once all the fees are included. This makes it a little easier to compare two loans, but having a broker or lender you trust is important. Once your offer is accepted and you have a bilateral contract you will have a few days to choose your lender and finalize your funding.
PRE-QUALIFIED and PRE-APPROVED
A key aspect in the home search equation is how much home can you afford? The best way to find out is thru the pre-qualification process Prior to placing an offer you will need to be pre-approved for a buyer to seriously consider your offer.
To become pre-qualified, you will need to provide some financial information to your mortgage broker or bank, such as income, savings and investments. They will use this information to estimate how much they can lend you. They will analyze your situation and do a few sanity checks, but the pre-qualification stage usually does not require documentation to prove validity of this information.
To be pre-approved, it will require documentation to be submitted to the broker or bank. W-2's, paycheck stubs, bank account balances and more. The lender needs to verify your financial status, income, assets and credit. WHen you are ready to make a realistic offer you will need to accompany the offer with your pre-approval. This gives the seller confidence that you have the money needed to purchase the property and the sale will successfully proceed to closing.