Purchasing your first home can be a mystifying and even frustrating experience unless you are equipped with the proper knowledge before you begin the process. Once you have some insight as to which steps to follow, and the proper sequence, the entire experience will be an enjoyable and rewarding one.
Many people see a home they like, sign a purchase agreement while giving the seller a down payment only to find out they can’t qualify for a mortgage. The sequence you follow is extremely important.
The first step is to calculate how much of a home you can actually afford. As a general rule of thumb, most lending agencies won’t approve a mortgage where the monthly payment exceeds 28% of your income. Look at homes you would like to purchase and determine the general price range. Then calculate how much the monthly payment for your dream home would be.
You can perform this step by using online mortgage calculating tools such as those located at either http://www.mortgagecalculator.org/ or http://www.zillow.com/mortgage-calculator/
After you have figured out the monthly payment, see if it exceeds the 28% figure. If it does, you probably will want to select a slightly less expensive home. If you are under that figure, your next step will be to obtain pre-approval from a lending institution such as a bank. Gather all of your financial records such as Income tax returns, latest pay stubs, bank statements and any other financial documentation you think will be pertinent. Schedule an appointment with the lender. You might want to write down any questions beforehand so you don’t forget to ask them during the interview.
Some banks offer either a pre-qualification or a pre-approval process.
The pre-qualification is relatively quick and simple and usually results in an estimate of your monthly payment, whereas a pre-approval is a more comprehensive loan application procedure which will normally result in an actual rate being established.
Although the second procedure is more intensive, it is generally the preferable way to go.
Occasionally the lending institution will ask for further documentation regarding income, credit history, liens, or other salient questions. Respond immediately and completely to their concerns. Otherwise, you might wind up with a denial of your application.
Once the bank approves you pre-approval application, you will have completed the first major step in buying your first home.