If you are considering purchasing a home but are wondering where to begin, this is the blog for you! You have heard that getting ‘pre-approved’ should be your first step but what does that mean exactly and how do you go about it?
Being pre-approved means that a licensed Loan Officer has looked at your income, job history, credit score, credit history, bank statements and other funds and has declared that you have the qualifications necessary to obtain financing for a home loan.
Loan Officers are trained to know what the home loan guidelines and requirements are, as well as what the lender and underwriter will require. When a loan officer determines that you qualify for a home loan they will issue you a pre-approval letter and introduce you to a realtor, if you don’t have one already.
When your realtor makes an offer on a home for you, they will submit this letter with your offer. Many realtors are not willing to take their time to show you homes until they have this letter in hand. And sellers will not accept your offer without being certain that you have the qualifications necessary to purchase their home.
After pre-approval there are a few things to keep in mind while you shop for your dream home.
Your loan officer has looked at a snapshot of your finances and the specific ratio between your income and your debts to determine your pre approval and purchasing power. If your income decreases or your debts increase for any reason, then you may not be pre-approved for the same loan amount or you may not be approved at all.
While looking for a home it is important to put any large purchases on hold and not make any changes to your employment or work hours.
Another thing to note is that all funds used as a down payment on your house will be sourced. That means that the lender will want to determine where the money came from. This is important because the lender will want to be sure that no new debt was incurred for the down payment that would prevent you from making the house payment or would affect the ratio between your income and debts and loan qualification.
The lender will ask for 2 months bank statements and will look at each deposit into your account. If the deposits are clearly identified as payroll, they will be considered sourced.
If there are other deposits, you will need to identify what they are. It is very important to never deposit cash in the 2 months prior to your home purchase because cash cannot be sourced.
For other deposits, your loan officer will give you specific supporting documents needed to source the deposit. For example, gift funds from a relative are an acceptable source of down payment and there is a specific way to document these gifts.
Getting a pre-approval letter from a licensed loan officer is the first step toward purchasing a home. It is important to find a loan officer that you can trust to do a thorough analysis of your finances and documents so that you can trust that you are pre-approved before beginning to shop for a home. You can read more on How to Choose the Right Mortgage Lender here.
A trustworthy loan officer is also the best person to ask for a referral to a real estate agent after you are pre-approved. They work with many agents and have a good feel for which ones will be a great fit for you and will have your best interests at heart.
Many new home buyers will go to websites such as Zillow and start looking for homes before getting their finances in order and speaking to a loan officer. This is one of the main reasons you hear that the home buying process is stressful.
In addition, many realtors pay for advertising on Zillow, and other websites like it, and often a buyer will call the first face they see when they find a home they like.
Although you may get lucky and find a great realtor this way, it is a random way to choose one of the most important professionals in your home buying process. When you are purchasing a home, the service of a real estate agent is of no cost to you. It is in your best interest to choose your agent carefully and consider taking the recommendation of your trusted lender.
DC Lending is a local and family owned Mortgage company based in Vancouver, WA. DC Lending services the entire Portland Metro area as well as anywhere in Washington and Oregon. Please visit our website to apply for pre approval with any of our knowledgeable and trusted Mortgage Loan Officers.
You can also request a copy of our Home Buyer’s Guide on our website as well.
Stayed tuned for the final Part on How to Qualify for a Home Loan.