Pre-qualified or pre-approval letter is a must.
In today’s real estate market, it is crucial that before you go house shopping that you know how much house you can afford. I have seen clients fall in love with a house only to be told they can’t get a mortgage for the price of the house. So now I require all my clients to get a pre-approval or pre-qualified letter from a lender before we even start looking at houses. Other things that you must take into consideration are the current interest rates and your down payment amount. Buying a house is a major investment, and you need to know the ins and outs of house buying before you go house hunting. Working with a mortgage lender or broker can also make you alert to any pitfalls that could possibly prevent you from purchasing a house or at least the size house you were dreaming of purchasing.
In such a tight market where homes can go under contract literally hours after listing, it is imperative that you submit a preapproval letter with an offer. It shows the seller that you are qualified to buy the home and that you are serious.
What size house can I afford?
This is one of the first questions asked especially by first time home buyers. Mortgage lenders go by a debt to income ratio to determine a max amount. There are debt to income calculators online along with various other types of calculators that can possibly help you guess the mortgage amount you can afford. However it is always best to talk with a mortgage lender rather than basing your information on do it yourself calculations. So many things factor into this number such as homeownership expenses (i.e., utility cost, HOA fees, ongoing maintenance and repair costs, furniture and decor, etc.), the amount of your down payment, the interest rate, current credit score and the list goes on. From this you can see figuring your max mortgage loan amount is not something you can easily calculate yourself.
Will the interest rate be up or down?
For the past 5 plus years, we have enjoyed record low mortgage interest rates. Then in 2018 the rates began to climb which many thought would be a continuation into the future, but then interest rates began to fall again. The lower the interest rate, the more house you can afford.
The interest rate is important but so is your credit score. Typically 620 has been the minimum credit score that lenders were looking for when considering a mortgage loan. However today with certain loan types lenders will go as low as 580. Of course, the higher your credit score the easier it is to get a mortgage loan.
How much down payment will you need?
For so long, everyone just assumed the standard was still 20% down which is simply not true. This just proves don’t believe what people tell you but check with a mortgage lender yourself. Down payment amounts have changed for the better. Some loans require as little as 3% or 5% as a down payment. The smaller your down payment the less money the buyer has to take to the closing table.
How long does it take from house hunting to the closing table?
There are numerous factors that can play into this time table, from available inventory to loan approval. Generally once you find a home and go under contract with a pre-approval letter, the entire loan approval process will take approximately 45-60 days.