Buyers: How Will You Pay for your Real Estate Purchase?
A new home can be paid for with cash, but most buyers purchase their home by using a mortgage loan. For most buyers, the first step in determining how much you can pay for a home comes from determining with a mortgage lender what your borrowing power is.
1. The process is called ‘pre-qualifying’. When you pre-qualify, you provide the loan officer with information about your credit, assets and debts. Based on the information you provide, you will find out how large a loan you could qualify for. This is not a commitment to lend, nor does it form a commitment on your part to borrow.
2. Pre-Approval is a conditional agreement from a lender for a specific loan amount. It is based on a verification of your income, credit, and assets, as well as your debts and obligations. It is conditional upon a satisfactory appraisal of the property you select and verification that the title to the property is free and clear.
With Pre-Approval, you can shop for a home with assurance because you will know in advance how large a loan you could qualify for. For additional assurance, you can lock in an interest rate to ensure the amount for which you pre-qualified doesn’t change.
Pre-Approval gives you an edge when buying a home since Realtors and sellers will know you are a serious homebuyer.
3. Savings and Credit. Rarely will a lender offer a loan for the entire purchase price of your new home. It is an obligation of the buyer to contribute some cash, usually referred to as the down payment. Your lender will explain to you how much money will be needed for the down payment on a home. You may need assistance developing a financial plan to help you save the necessary money for the down payment and closing costs.
It is important to have a good credit history by paying your bills on time, limiting your debt, and reducing the amount of credit cards you have and the responsible use of those cards. Your loan officers will review your credit report with you to make sure the record of past and current debt is accurate. The better your credit history, the better your credit score and the more mortgage options you will have.
Mortgage loans are subject to qualification, receipt of satisfactory appraisal, and verification of income, asset and debt information provided by the customer. All of these verifications take time. It is not unusual to experience delays in the lending process, as well as in other requirements of the contract, which can result in extensions of the closing date. It is a good idea to discuss your interest rate lock with your lender, and to be confident that minor delays will not affect your ability to borrow at the locked rate.
