Before you start looking for a new home, it’s crucial to evaluate your financial situation. This will provide a foundation for your search and position you to win negotiations. Once you’ve done your financial preparations, it’s time to get a professional review.
Start With Pre-Approval
Pre-approval takes all your financial information into account (including a full credit report) to give you a clear measure of the mortgage amount you can afford. Getting pre-approval from a lender can save you grief of finding your dream house, only to find you don’t make the cut financially. Pre-approval also puts you in position to make a quick and serious offer when you do find the right house.
The Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac, is a public government-sponsored enterprise (GSE). Freddie Mac lays out the advantages of pre-approval in the ‘My Home’ section of their website:
“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”
One of the many advantages of working with us at Path & Post is we’ve already vetted local lenders and can recommend a few who know how to get loans closed. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”
The Four C’s Of Qualification
Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:
- Capacity: Your current and future ability to make your payments
- Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
- Collateral: The home, or type of home, that you would like to purchase
- Credit: Your history of paying bills and other debts on time
Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.
Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so.