It’s finally happening: You’re getting ready to buy your first home.
Now that you’ve reached this exciting step, you’ve got questions. What kind of house do you want? What can you afford? And, how will you find the right place in such a competitive housing market?
To make the process as easy and stress-free as possible, you’ll need an experienced team by your side – and a preapproved mortgage in your pocket.
What Is Mortgage Preapproval?
For most of us, a mortgage is key to buying a home. With preapproval, you can get the financing process started early by having a lender evaluate your home buying needs and financial situation to determine how much you can borrow and the specific mortgage terms available to you.
Know Your Purchasing Power
No one wants to be house poor. That’s why choosing the right home and the right mortgage go hand in hand.
If you have good credit and significant income, you may qualify for more financing than you want to use. After all, a bigger mortgage means bigger payments, and you don’t want financial issues or increased stress to get in the way of enjoying your new place.
As a rule of thumb, you want to avoid spending more than 30% of your pretax income on housing. Preapproval will help you figure out what kind of loan and monthly payment fit your finances.
Armed with this information, you and your real estate agent can narrow down your search to only properties within your price range. This helps you save time and avoid the disappointment of finding your dream home… only to discover it’s over your budget.
Stand Out from the Crowd
See a home you love? Chances are, other potential buyers love it too. When competing against other bidders, you want to give yourself every possible advantage.
A preapproved mortgage can help. Just like you, home sellers want a quick closing process without any surprises. Being assured that a buyer has a commitment from a lender will give them more peace of mind.
Here at Dover Federal Credit Union, members who get preapproved for their mortgage receive a home loan preapproval letter they can show to sellers when placing an offer.
Preapproval vs. Pre-qualification
These two terms are easily confused, and real estate professionals may mean different things when describing these processes.
Typically, pre-qualification refers to a quick process in which a lender gives you an estimate of your mortgage amount and terms, but without a commitment to provide this financing.
A mortgage pre-qualification is usually based on unverified financial information, and it may not include a credit check. If a homebuyer provides the lender with accurate information, pre-qualification can be useful, but it offers no guarantees.
Preapproval, on the other hand, is much more than an estimate. The lender will check your credit and look at a variety of documents like your W-2s, tax returns, and accounts. It’s a longer, more thorough process that results in a more accurate picture of your financing and a commitment from your lender.
What Lenders Consider
So how do lenders determine whether they can approve you? They’ll look at a number of factors, including:
- Debt-to-Income Ratio: This is a comparison of your monthly expenses, like rent and bills, to your monthly income.
- Income & Employment: Lenders want to see steady income to ensure your ability to make ongoing payments.
- Credit Score: This reflects your history as a borrower and affects the interest rate you’ll pay (higher scores typically get the best rates).
- Down Payment: How much you can pay up front will help determine your eligibility and the rate you’ll pay.
The Early Bird Gets the House
By starting the financing process before you’ve even placed an offer on a home, you can form a relationship with a lender ahead of time and take care of many aspects of the application sooner.
Once you’ve placed an offer, and had it accepted, you’ll have fewer tasks to complete (and probably less stress) as you enter the home stretch.
Guiding the Way to Closing Day
As a trusted local lender, Dover Federal Credit Union is ready to offer the guidance and low-rate mortgage options you need to get moving.
If you’re a first-time home buyer or ready to move to your next home, you can use our mortgage payment calculator or get an instant online rate quote. And when you’re ready to get preapproved, we’ll make the process a breeze.