Buying a Home: Step 2 - Financing the dream

Now that you have finished your needs and wants assessment and have an idea of what your future home should look like, it's time to start shopping... for your mortgage. Before you cross a single threshold it's important to investigate your mortgage options and secure your financing. The reason for this is twofold; first and foremost it's important to know what you can afford and from there determine what you want to spend. Second and equally important, without having secured your financing, you'll be at a disadvantage to those buyers that have their financing in place when you find your dream home and decide to make an offer. Although our standard purchase and sale agreements include a financing contingency, buyers who are pre-approved carry more weight with sellers when they are deciding which offer to accept.

In Fairbanks nearly 94% of all buyers financed their home purchase, a figure slightly higher than the national average. Although the sub-prime market meltdown has made certain non-conventional home loans all but impossible to get, virtually anyone with a decent credit score and sufficient income can still obtain a mortgage.

Pre-Qualified vs. Pre-Approved

Loan pre-qualification is a simple process. It can be done over the phone, in person or via an online form on a lenders website. It takes into account basic information about your income and assets and provides an amount for which you may qualify. The keyword here is may. The amount you are pre-qualified for is based on unverified information you provide without a thorough examination of your financial background.

A pre-approval on the other hand, is a much more involved process. In order to be pre-approved a lender will ask for and review detailed information regarding your employment, income, assets, debts and credit history. Most major lenders utilize an automated underwriting system which can give you preliminary loan approval almost instantly. This pre-approval will tell you the exact amount you qualify for.

After receiving your pre-approval it's important to take a little time and review your budget. Just because the bank will loan you $300,000 doesn't mean you are necessarily comfortable with making that monthly payment. Look at your current spending habits too see if your projected mortgage payment will put you out of your comfort level. The last thing anyone wants is to be burdened by a mortgage payment. Make sure to include the cost of utilities in your planning; electricity, water/sewer fees, trash collection and natural gas/heating oil, all of which can total 20-30%% of your total monthly mortgage payment.

Next: Selecting an Agent