You’ve been dreaming of buying a new home for a while now. Maybe you’ve been looking at listings online. But how do you know how much you can afford?
Find out how much by getting pre-approval for a home loan before you start shopping.
According to the National Association of Realtors 2021 Homebuyers and Sellers Generational Trends Report, the top three most difficult parts of the homebuying experience include:
- Finding the right property
- Paperwork
- Understanding the homebuying process
Buying a new home isn’t something you do regularly. Where do you start?
Start At A Lender’s Office, Not An Open House
A new home often starts with dreaming. Websites and apps make it easier to get inside houses in your chosen location. You can drive around, find potential properties, and may be tempted to stop at an open house. But that isn’t your best first step.
Perusing a neighborhood and dreaming big can disappoint if your numbers don’t match your dreams. Many homebuyers are surprised by the numbers once they start the homebuying process. That’s where pre-approval comes into play.
Pre-approval is as close as you can get to understanding how much you can afford without putting the contract into place. You’ll complete a home loan application, and the lender will qualify you based on the data you provide. They’ll ask for information like your Social Security number, two months of bank statements, and employment history for the past two years. Then they’ll run a credit check to understand your creditworthiness. You’ll receive a pre-approval letter for a specific amount if you’re pre-approved. This letter is good for 90 days and assures the seller that you’re committed to buying their home.
Why A Pre-Approval Letter Can Make You More Attractive To A Seller
The homebuying process has been anything but stable these past years. Prices are rising even in unexpected places. People have bidding wars on the few homes for sale. Interest rates are rising. What’s a homebuyer to do? Pre-approval for a home loan can help mitigate some of this stress.
Lenders work with loans every single day. They can quickly give you an idea of what price you’ll qualify for and how a payment comes together.
Pre-qualifying is not the same thing as pre-approval. Think of pre-qualifying as the first step in the pre-approval process. This is where you get an estimate based on a few pieces of information you provide. This is also when the lender will go over the various mortgage options available, helping you find the right one to suit your needs. A pre-approval goes a step further and uses documentation to confirm the information you share. Because of this extra confirmation, a pre-approval letter carries more weight than a pre-qualification letter.
You’re Pre-Approved – Are You Approved Too?
With so much work going into the pre-approval process, some homebuyers are shocked to discover they have more trouble during the approval process.
Pre-approval for a home loan is not the same thing as approval.
Pre-approval gives you a good indication of how much you’ll qualify for once you apply for a loan. But things change once a lender digs deeper and starts looking at the property you wish to purchase. This is when the lender makes the final decision on your ability to pay back the entire loan and how worthy the purchase is.
As a lender digs deeper, they will look at:
- Appraised Value. Lenders order an appraisal of the home to ensure the price you offered and the amount of the home loan won’t be more than the property is worth. An appraised value that comes back lower than the purchase price could be a problem for your home loan.
- Title. Lenders work with a title company to confirm who owns the property and assure there are no liens against it.
- Inspection. An appraisal looks at the home and community it’s in, using comparables to finalize the price. An inspection goes into more detail on the condition of the home you’re buying, ensuring it doesn’t have significant faults that could impact its living conditions. An inspection finds hidden problems such as water damage, cracked foundation, poor roof quality, or not being up to code.
Start Your Pre-Approval Process Today
When you receive pre-approval for a home loan, it’s a letter of intent. There are no laws that bind you to go through with the process. Think of it as a tool you can use to make your offer even more attractive to a home seller. And in today’s real estate market, that can be a checkmark in your favor.
Are you ready for the pre-approval process? Start by collecting your documentation. It’s essentially a mortgage application process with a loan officer taking a comprehensive look at your ability to repay the loan. You’ll need:
- Identification – a license or passport
- Proof Of Income – W-2 statements
- Employment Verification – pay stubs
- Credit History – Social Security number for running a credit report
- Proof Of Assets – bank statements or other documentation to prove the value of your assets
With all the documentation in place, you can generally expect your home loan estimate within three business days. This will be your pre-approval and give you the assurance you need to bid on houses you’ve been considering.
The home loan experts at Solarity Credit Union understand that a lot goes on when you purchase a home. Their home loan page is filled with tools to help simplify the home loan process. Do you want a home loan for your primary residence or a vacation home? Do you need a bridge loan to help you while you build or wait for your current home to sell? Or maybe you’re just looking for a payment calculator to play around with the numbers. Sometimes, the best place to start is with a breakdown of everything you need to know. It can make it easy to start filling in the gaps toward understanding your next steps.
Bottom Line
Pre-approval is a great first step in buying a home and getting a home loan. With your financial information in order, you’ll have a clear idea of how much home you can afford. It gives you assurance that owning your own home is possible.
Contact Solarity to get started on your pre-approval for a home loan today.
