In many markets across the country, the amount of buyers searching for their dream home greatly outnumbers the amount of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.
But even if you are in a market that is not as
competitive, knowing your budget will give you the confidence to know if
your dream home is within your reach.
Freddie Mac lays out the advantages of pre-approval in the My Home section of their website:
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 a local real estate professional is that many have
relationships with lenders who will be able to help you with this
process. Once you have selected a lender, you will need to fill out
their loan application and provide them with important information
“your credit, debt, work history, down payment and residential history.”
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
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 as well.