Finances are personal. They often reflect life choices and decisions we may not be proud of such as divorce, debt, college loans, or even hospitalization. A surprising number of people continue to pay their landlord’s mortgage simply because they never took the first step towards home ownership out of embarrassment over their credit history, many would be surprised to learn that they have been throwing money down the drain needlessly.
While your financial particulars are very personal, they are usually not unique to you. Lenders have seen so many variations of your situation that it is highly unlikely that you will shock them.
A true professional will treat you with respect and give you an accurate picture of what you can realistically afford. Your business is valuable, regardless of the dollar amount of your loan. If a lender does not show you the same consideration they show their high dollar clients, simply take your business elsewhere
So I swallow my pride and make a decision to talk to someone about my finances, what is the first step?
With so many programs for first time homebuyers, zero down and low interest financing options, home ownership is more possible now than ever. BUT- you have to take the first step…Pre-approval.
What does it mean to get pre-qualified?
Pre-approval means simply that a qualified lender will look at your credit history and income, compare it with your current monthly obligations, and see what you can realistically afford. It does NOT mean you have already been approved for a loan, rather it is a predictor of the likelihood you will get a loan.
Should I find a house I like first??
No! Speaking with a lender before you hit the streets with a realtor will benefit you in the following ways:
You’ll Avoid Disappointment:
Pre-approval helps you know which houses you can realistically afford. Learning about credit report errors, high debt balances, and an insufficient down payment early will give you time to correct the problem before you apply for a loan, and before you fall in love with a house you are unable to purchase.
You’ll Save Time:
Knowing ahead of time what you can afford helps narrow the choices, which means you’ll find what you want faster and with less run around.
You Can Plan Wisely and Establish Priorities:
No home is going to be perfect, no matter how much you pay. Going through the pre-qualification process helps you focus on which of the features in a home are most important to you, an plan your search based on your pre-determined criteria.
Your Offer Will Be More Attractive To The Seller:
They’ll know you can afford it, and you won’t have to place a *contingency offer. Also, if they have more than one offer, they’ll more than likely accept the one without the contingency, and the one with pre-approval by a lender.
Your Closing Will Go Smoother:
Lenders can detect any potential problems that might make obtaining a loan difficult. If there is something in your credit which could keep you from qualifying for the home you’be chosen, it should have been identified and dealt with during the pre-approval process. By the time you get to closing there is less likely to be any surprises, which would hamper your ability to purchase.
(Keep in mind, a lender will most likely pre-approve you at the top of your ability to buy, which means that homes that you consider must be in that range or lower. If you try to go significantly over your approval rate by more than five or ten percent, you will risk losing the home, and possibly the opportunity to buy a home that would have been more suitable)
*Contingency: A condition that must be met before a contract is legally binding. For example, home purchases often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.