Buying a home can be fun and exciting. It can also be very challenging if you are not prepared. There are definite steps to preparing your finances for this process, and while it seems like a lot of work, and it can be, it will pay off when you are ready to purchase your new home.

Why Do I Need to Pre-Qualify for a Loan?

There are many reasons for you to pre-qualify before you begin searching for a home. The first is that before your REALTOR works with you, they will want to know you’re qualified to buy a home.

Did you know that a pre-qualification form is part of our residential purchase contract? Yep, it needs to be sent with your offer to purchase a home. This also helps the Seller know that you’re serious about the process of buying their home. They likely will not even look at or consider an offer without a letter of qualification from a reputable lender.

Another reason is that the amount you qualify for can often dictate where and what type of home you will be looking for.

If you’re planning to buy a home soon, a pre-qualification should be the first thing on your list. Check out this list of steps to help you pre-qualify for a home loan so you can be properly prepared: 

Review Your Credit Score

Your credit score plays a significant role in securing the right mortgage for you. The higher your credit score, the better. Good to excellent credit scores, those around 670 and above get higher chances of mortgage approval and lower interest rates. 

Review your credit report and make sure that you know your credit score. To get a copy of your credit report, go to places like freecreditreport.com. Everyone who goes there can get one free credit report per year.

Gather Your Financial Documents

Lenders need to know that you’re capable of paying your monthly mortgage. You need to prepare your financial documents to make sure you can give them accurate information about your income, assets and ability to pay a mortgage. 

Lenders will want to see things like your most recent 2 to 3 months of paystubs, bank statements, tax returns from the last two years, credit report, and tax transcripts from the IRS.

From that information, your debt-to-income ratio helps your mortgage professional provide you with a total amount you can afford to buy.

Prepare for the down payment

Some mortgages will require a 20% down payment, while some will require a lot less, like FHA or VA loans. If you’re not qualified for the latter, you may need to prepare to pay a larger amount. Remember, 20% is NOT needed for a conventional mortgage. In fact, it is very common for people to use 5 or 10% as their down payment amount.

Many types of loan programs are available. A good mortgage professional will help guide you to the best product for your financial situation.

You can also decide to put down a more significant down payment if you wish to do so. A higher down payment will reduce the amount you need to borrow, reducing your monthly mortgage payment. Sometimes, a higher down payment can also reduce the amount of your interest rate.

Find The Right Lender for You

We are happy to give you a list of lenders from which to choose. We work with several lenders and mortgage brokers who work with different companies to help you find the best loan program for your situation. A benefit of a mortgage broker could be having many lenders to choose from and finding the best loan programs for your unique situation.

Give yourself a variety of options and talk to reputable lenders. Most mortgage brokers have access to similar programs, so it’s best to choose the broker who has a really good communication process. 

Securing your pre-qualification letter

Once you’ve gone through all of the above, your lender will issue you a pre-qualification letter. We will send a copy of that form with your offer on the home of your choice.

A Word of CAUTION: Do not buy anything on credit once you’ve entered into the mortgage loan process. No new cars, appliances, or furniture. Any changes in your credit report could adversely affect your credit score and disqualify you from obtaining a loan.

Are you excited about your new home? 

Preparing to buy a home can be stressful if you don’t know what to do or where to start. If you think you’re ready, give us a call, and we can help you through the entire process! Our team can help you with the purchase of any home for sale, and we can help you find the one that’s best for you!

Buying Your First Home

Your first time buying a home can be like a roller coaster ride with many ups and downs. Setting proper expectations with yourself is critical to maintaining an even keel during the process. You’ll need to make decisions along the way, and making them from an emotional frame of mind is rarely your best option.

Many of the myths you’re going to encounter are far from the truth, but they shouldn’t hold you back. 

Here’s a list of 5 myths about home buying to help you in buying your next home:

1. You Don’t Need a REALTOR

Many people will tell you that you can save so much more when you buy the house on your own, but that’s not true. REALTORs can be an essential and valuable part in purchasing a home, especially when it’s your first time. Just make sure to find an experienced expert who will work on your behalf. That’s VERY important!

Realtors are familiar with the neighborhoods, towns, and cities you want to live in, and they have connections with reliable people who can make the entire process easier for you. 

2. You Need a 20% Down Payment to Purchase a Home

Some private mortgages will require a 20% down payment, but that’s rarely your only option. There are many other types of mortgages you can apply for that will require a much lower down payment. 

Programs are available offering home loans with down payments as low as 3.5%, and if you’re a veteran, you can buy a home with nothing down. Your local REALTOR, like us, will have many lenders they can refer.

3. You Need Great Credit to Buy a Home

Bad credit can hinder you from doing many things, but buying a home isn’t one of them. You don’t need a perfect credit score to be able to secure a home. But the better your credit score, the less risk you become to lenders. The better your score, the lower your interest rate will be.

There are ways to get a better credit score with a credit repair service. The process is doesn’t usually take that long and even a small increase in your score could save you a lot of money.

4. You Should Offer the Seller the Listed Price

It isn’t unusual for a home to have multiple offers in our current market. The inventory of homes for sale is historically low, and so are mortgage interest rates. Multiple offers create competition between buyers for homes, and offering the listing price may get you ignored entirely by the seller.

Knowing about homes that have sold around the house you want will help you understand what to offer. Offering more than the list price is a common reality in our current market.

5. You Can Skip Inspections

No matter what people tell you, it would be best if you did not skip inspections when buying any home. If you choose to buy the home as-is and forgo inspections, it may cost you a lot in repairs. 

Inspections are vital to the home buying process. It may cost a little bit more at the moment, but it can save you a lot in the long run. In our current market, it’s not unusual for buyers to waive inspections as a contingency of sale. That said, you want to do your inspections anyway. You want to know the condition of what you’re buying. It’s just smart.

You’ll want to make sure to do a walkthrough, as well!

Ready to buy your new home? 

There are many other myths you may hear about buying a home, and that’s what we can help you. We will guide you through the home buying process and help you make sure that you’re properly represented. 

Schedule a call today, and let’s talk about how we can help you find the perfect home!

We’re always happy to help! Just call The Nick Bastian Team at 602-803-6425 when you’re ready to buy or sell a home.