Prequalifying for a Mortgage

Home buyers should get pre approved for a mortgage first before they searching for a new home.  Why is it important to worry about a home loan that early in the home buying process?

Why prequalify for a mortgage?

The most important thing about prequalifying for a mortgage is that you will know how much house you can afford, according to the lenders. Your real estate agent will not waste time chasing after homes that are beyond your means or beneath your needs. And the seller will know that you can afford to buy their home and that your offer is serious when you make it.

One good thing about prequalifying for a mortgage is that it’s free. Most lenders will collect your pertinent financial information — income, expenses, savings, debts, existing home equity (if any), other assets, etc. — run the numbers and then tell you what you can afford to finance under their guidelines. It can help prevent you from “having eyes that are bigger than your stomach,” in other words, getting into a home that is more than you can afford.

A mortgage professional can also explain your options, including special mortgage programs you may not even be aware of that differ from traditional fixed-rate or adjustable-rate mortgages. Prequalification is the best way to determine the range of what you can afford. In most cases, if you have assembled all the pertinent paperwork necessary for the prequalification process (as we discussed in our last installment of this series), a potential lender should be able to run the numbers and provide you with an answer within a day or two, sometimes on the spot.

We suggest that you contact several mortgage brokers and/or lenders. Just as the same cartful of groceries may vary in price at different supermarkets, the amount you may prequalify for can differ among different lenders. And prequalifying with a handful of lenders grants credence to the process, knowing that you have a consensus of opinion as well as giving you confidence as you move forward in the home buying process.

It will be a happy day when you hear the magic words: “You’re preapproved for a home loan of (insert amount)!”

Remember that the amount you prequalify for is the maximum amount you will be able to borrow, although you could select a home with a lower price tag, if you desire.

For example, if you prequalify for a $250,000 mortgage and you have $25,000, or 10 percent of the purchase price available in cash to use as a down payment, you actually could afford to look at homes that would cost up to $275,000 (because the amount you need to borrow is $250,000. But you may not want to go that high, as there are often unforseen expenses associated with buying a home or you may wish to make immediate upgrades or improvements as soon as you move in.

Conversely, you may want to look at homes with asking prices of up to $300,000 or more, because asking prices can be negotiated down to effect a sale, especially in today’s housing market, which favors the buyer more than the seller. Just don’t tap yourself out or you may find yourself sleeping on the floor of your beautiful new home because you can’t afford to furnish it.

Contact a lender today to get prequalifed for a mortgage.  Then start looking at homes for sale. 

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