The busiest time of the year in real estate is here: spring. There are more people looking for homes, which means you will have more competition. You can’t skip this step if you want to be in the best position to buy: getting pre-approved for a mortgage.
Some people who want to buy a house think they can wait to talk to a lender until they find the perfect house. That’s not a good idea during a time of year when homes sell quickly. It’s much safer to get pre-approved before you start looking.
Here is what you need to know about this first step in the getting the house.
What Is Pre-Approval?
When you get pre-approved, you can get an idea of how much a lender is willing to lend you for a home loan. A lender starts by looking at your credit history to get that number. Yahoo Finance says the following are some of the things that can make a difference:
- Your ratio of debt to income (DTI): Divide the amount of debt you have by the amount of income you have. Most of the time, a lower DTI means you can borrow more money.
- What you make and whether you have a job: They want to see proof that you have a steady source of income. That way, they can be sure that you can pay back the loan.
- How good your credit is: You might be able to borrow more if your score is higher.
- Your history of payments: Do you always pay your bills on time? Lenders want to know that you won’t abuse their trust.
You will get a pre-approval letter that tells you how much you can borrow after they look it over. Having this peace of mind is very important; it makes you much more sure that you can get a home loan. On top of that, it can speed up the process of closing because the lender will already have a lot of information about you.
It Helps You Figure Out Your Budget
Now is a competitive time to buy something, and you might feel very strongly if you have to go up against other people. It is very important to have a clear budget in mind. You don’t want to get too attached and borrow all the money you can. Freddie Mac says it this way:
Remember that the loan amount listed in the pre-approval letter is the most the lender will lend. In the end, you should only borrow as much as you can easily pay back.
Now is the time to really focus on your numbers. Also, don’t forget to include other costs of owning a home, like property taxes, insurance, and maybe even HOA fees, so you know how much you can comfortably spend.
Then, work with your real estate agent to narrow down your search to homes that fit your budget. That way, you won’t fall in love with a house that costs too much for you.
It Helps Your Offer Stand Out During the Busy Season
Buyers in the spring aren’t just competing for homes. Also, they are all trying to get the seller’s attention. A pre-approval letter can also help you stand out because it shows that you’ve already had a credit check. This is how Zillow explains it:
That’s right. Having a pre-approval letter on hand can help you move quickly when you find a home you love. Anyone who reads the letter will know that you’re a serious buyer with the money to buy the house. In a competitive market, an offer that comes with a pre-approval letter will stand out from offers that don’t have one. This makes it more likely that your offer will be accepted.
That means that if the seller has more than one offer, yours might be the one they choose because you’ve already done this.
One more thing I want to tell you. Once you get your letter, don’t apply for new credit cards or loans, co-sign for loans, change jobs, or move money into or out of your savings account. This is because if your finances change, it could affect your pre-approval.
Bottom Line
Getting pre-approved should be your first step if you want to buy a house this spring. You’ll know what you can afford, sellers will know you’re serious, and you won’t fall in love with a house that you can’t afford. To begin, talk to a lender.