Pre-Approval: A Homebuyer’s First Step
Jul. 21. 2020
Hi again! Thanks for reading. Many times my clients reach out to me with homes they want to see in the next few days—
Well first things, first–let’s make sure you can afford and are comfortable with the payments and taxes that come along with your dream home, amIright?
Below is a few tips on why you need to be pre-approved before you start seeing homes in person.
As a (first time especially) homebuyer, it’s easy to jump online and start looking at pretty homes you can imagine yourself living in. But, many forget the first step to the home buying process: pre-approval. Your pre-approval is one of the most important aspects of the journey. And let me tell you why you need to do this FIRST.
You’ve probably heard two terms that sound pretty similar: pre-qualification and pre-approval. Contrary to how they may sound, they are different terms. Pre-qualification is when a lender makes a tentative assessment of how much they’re willing to lend the buyer. Pre-approval is the same in theory but requires more verification. In other words, it is verified consumer data and a credit check. The process for pre-approval requires the following:
- Filling out an application with a lender.
- Providing the last two years of tax returns.
- Submitting bank documents and proof of assets.
- Running a credit check.
Your pre-approval will tell you how much you can afford in addition to your down payment amount, how much you need to bring to closing, and your monthly payment costs with insurance and taxes (if you have an example of a home you like, definitely send to lender for rough estimates).
Now that you know what pre-approval is and the steps to get that pre-approval letter in hand, I’ve got some tips I’d like to share with you:
Tip #1
Do not use online lenders or big banks! Instead, consider using who your REALTOR® recommends. I always recommend a local lender who can service, package, and sell your loan competitively, while also guiding you through the process and answering any questions you may have and being available to serve you and inform you of various options.
Tip #2
Disclose, Disclose, Disclose! Make sure your lender knows your plan so they can work out any obstacles on the front end. Nothing is worse than running into a problem after you find the home you want to purchase. Is Mom or Dad letting you borrow funds? Gift funds? Is your down payment from a divorce or 401k-let your lender know up front!
Tip #3
Financing is usually the number one reason a deal falls apart. With that being said, you want a clean offer with a strong pre-approval letter in hand from a trusted lender.
FAQs:
Should I wait until my credit goes up to get pre-approved?
Actually, no. Might as well have a lender take a look and give you great advice to get you pre-approved with a better rate, including credit tips, solving issues and to help you set financial goals of what to save for your purchase.
Will a pre-approval ding my credit?
Yes and no. There will be a slight ding, showing an inquiry, but this does not impair your credit. What you do NOT want to do is get pre-approved for a house, a boat and car all in the same week-that does NOT look good and will hurt your credit a bit more.
Should we wait until we find the right house to get pre-approved?
Definitely not. Again, I am all for getting your financial ducks in a row FIRST. Know what you can afford, send the lender various homes you love so they can “run numbers”, disclose your current financial situation, or if you plan to change jobs so any obstacles can be overcome on the front end. Don’t open any additional lines of credit once you are under contract on a home. You can get pre-approved a year before you buy as well, knowledge is power–know what you can afford, expect, need to have in your emergency fund as well as what your monthly taxes will be. Also note that your annual taxes will most likely go up year to year–you will want a plan.
Here’s a video recap of basically what I told you above:
You can also find more home buying, selling, and real estate tips on my YouTube Channel.
Hit me up if you have any additional questions or if you’re searching for a trusted lender in the Austin-area.