Get Approved!

Recently I've been referred a couple new buyer clients. One of the first things I recommend to a home buyer is to speak to a mortgage professional to be pre-approved. The common theme between these new clients has been their hesitation to speak to a bank/lender. This has come as a surprise to me! In my experience, clients have understood the benefit of speaking to a professional to understanding their finances, but these new buyers did not initially see the value. 
Because of this, I wanted to reiterate the importance of the initial step in the buying process- Obtain Financial Pre-approval. 
What is the difference between a pre-qualification and a pre-approval?

Pre-qualifying will help you in the following ways:

Generally, interest rates are locked in for a set period of time.  You will know in advance exactly what your payments will be on offers you choose to make. 

You won’t waste time considering homes you cannot afford.

Pre-approval will help you in the following ways:

A seller may choose to make concessions if they know that your financing is secured.  

The Pre-Approval determines:

How Much Home Can You Afford

There are three key factors to consider:  

*The down payment  

*The closing costs associated with your transaction.

                                                *Your ability to qualify for a mortgage 

Down Payment Requirements:

Most loans today require a down payment of between 3.5% and 10.0% depending on the type and terms of the loan.  If you are able to come up with a 20-25% down payment, you may be eligible to take advantage of special fast-track programs and possibly eliminate mortgage insurance.

Closing Costs:

You will be required to pay fees for loan processing and other closing costs.  These fees must be paid in full at the final settlement, unless you are able to include them in your financing.  Typically, total closing costs will range between 2-5% of your mortgage loan.  

Qualifying For The Mortgage:

Most lenders require that your monthly payment range between 25-28% of your gross monthly income.  Your mortgage payment to the lender includes the following items: 

The principal on the loan (P) 

The interest on the loan (I) 

Property taxes (T), 

The homeowner’s insurance (I).  

Your total monthly PITI and all debts (from installments to revolving charge accounts) should range between 33-38% of your gross monthly income.  These key factors determine your ability to secure a home loan: Credit Report, Assets, Income, and Property Value.

Knowing what you can afford both upfront and on a monthly basis makes the buying process a lot more enjoyable. I never like to show a property that is above my clients comfort zone, it's not fair to my client nor the seller. I hope by reading this, you understand the benefit of taking 15 minutes to speak to a mortgage professional.
If you have any questions or would like recommendations, please contact me. I'm happy to help!