You might think that finding the house is the first step in buying a new home. In fact, it’s highly recommended that you verify your financial readiness first so that you can act quickly when you do find the right home. A preapproval for credit can be used to let the seller and real estate agent know you’re a serious buyer. It provides a high level of confidence for everyone involved in the purchase and may offer an advantage in a competitive bidding situation.
As a buyer, getting a preapproval for credit early in the home-buying process gives you more power and peace of mind. Once you have the paperwork sorted out, you can enjoy searching for your dream home without anxiety over the credit approval process.
Preparing for a Preapproval for Credit
A lender can be a great partner when you’re ready to buy a home. Think of your lender as a non-judgmental advocate who can help you maneuver the financial paperwork needed to purchase a home. No matter how much you already know about your finances and the home-buying process, it’s always good to contact a lender and get preapproval for credit before you start looking at homes. Remember: A lender’s goal is to get you into a home, so don’t hesitate to put yourself out there and ask questions.
It can be so disappointing to work with a real estate agent to find a home, only to discover that you can’t get credit approved for the loan. One of the advantages of working with a lender at the beginning of the process is to get an evaluation of your financial circumstances, including income and debt, and ensure that you buy the best home within the right price range. Lenders have an intimate understanding of their underwriters’ requirements and can help establish realistic expectations.
Credit
For all types of home loans, your credit will play a major role in qualifying for programs. Although you don’t need perfect credit to get a loan, it’s important that you’re up to date on all your bills. Once a year, you can get a free copy of your credit report from each of the three credit bureaus by visiting the government website atwww.annualcreditreport.com. Before meeting with a lender, review your reports to make any corrections. If you don’t understand how to read the report, a lender can guide you through it.
Down Payment
The required down payment amount will be determined by the loan program you and your lender select. It isn’t always necessary to have a 20% down payment in order to purchase a home. Some options may require as little as 3.5% down, with impact on mortgage insurance and other aspects of the loan. Using your preapproval information, the lender can help you assess multiple options to determine which is the best fit for your current situation and future financial expectations.
Meeting with a Lender
Today, buyers often meet with lenders over the phone rather than in person. The lender will discuss your credit, debt, income and savings. Having current statements handy is helpful, but it’s usually enough in the first conversation to have a general idea of your complete financial picture.
The credit preapproval process will vary from lender to lender. At a minimum, the lender will review your credit report and pay stubs. Some companies have an underwriter review the information and possibly request a bit more financial detail.
After this review, the lender will be able to discuss loan options and recommend a loan program. This will help set realistic expectations about how much down payment you need, what your monthly payments will be and the price range for a home you can afford. Coming from this discussion, the lender will create your credit preapproval letter.
The preapproval for credit gives you confidence in your buying power when you’re ready to make an offer. Preapproval for credit helps sellers take your offer seriously because they know you can get the money you need to buy their home.
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