Thursday, August 30, 2012

Preparing for Pre-Approval and Getting a Mortgage

Copyright ©Phillip Taylor PT, used with Creative Commons
Seeking pre-approval for a mortgage even if you haven't yet found a house you want to make an offer on will make the buying process quicker and easier when you do find your dream home. By working with a bank or broker to determine how much loan you qualify for, determining your down payment, and the health of your credit, you'll also know exactly how much home you can afford. That will make your real estate search even easier, because you won't waste your time on properties that are beyond your means. Here's how you can start the pre-approval process.

Bank or broker? This is the first question you should ask yourself. Which you go with will depend on the kind of relationship you have with your bank, and any referrals given to you by family or friends. If you know someone who recently bought a home, ask their advice. They may be able to recommend a great loan officer, or tell you which companies they didn't go with and why. If you've been with your bank for a good amount of time, are pleased with the level of service you have received, and they offer good rates, that may be an obvious route to take. It never hurts to also call around town to several different banks and brokerage offices just to compare rates and customer service experiences. Your realtor is also a great resource, and can recommend a lender with whom other customers have had a positive relationship.

This is where you want to be on your mortgage!
Copyright ©Daniel*1977, used with Creative Commons
While you are researching lenders, you can also take the time to clean up your finances. Do what you can to improve your credit score. You can't make up for years of financial mismanagement in a few days, but you can do a few last minute touch ups. If you can transfer the balance of a credit card to one with a lower rate, now is a good time. If you are carrying a relatively low balance on a card or are close to finishing a big loan purchase like a car and can pay it off without wrecking your budget, do so. If you pay off a credit card or loan account, don't close the account. Leaving it open but with a zero balance improves your credit score. Also, avoid any major purchases like furniture, a car, or a mattress that you would get on credit. You may technically be able to afford it, but suddenly altering your credit to debt ratio can make you seem like a poor risk to lenders.

Once you have tidied up your finances and selected a lender, you can begin the pre-approval process. They lender will typically pull your credit score and do their calculations and call you back in a few days with news on how much loan they can offer based on your credit and down payment. With that information in hand, you and your realtor will have a better idea of not only what price range of properties to look at, but what mortgage payment you can comfortably handle each month, and how much you can afford for any possible repairs, renovations, taxes, or other post-purchase costs. By seeking pre-approval, your ability to offer and close will also be more streamlined. You'll reduce the risk of missing out on a must-have property to a buyer with faster access to capital, or time spent negotiating and counter-offering with the seller while also trying to wrangle with a bank or broker.