Welcome back to Homebuying 101! So far we've covered the basics of the homebuying process, how to find a real estate agent and questions to ask once you've found one. Now, we're diving into the next step — finances.
Saving up for a downpayment is a big part of the homebuying process, but obtaining a preapproval is just as important. You wouldn't want to get attached to a home you can't afford, and similarly don't want to sell yourself short by being too conservative. A preapproval can help you understand exactly how much you can afford to borrow, narrowing down your choices so you can focus on properties in your price range.
A preapproval can also give you an edge in negotiating and can expedite the closing process. Sellers know you're serious and your finances have already been verified, potentially getting you into your new home sooner.
Now that you understand the value of a preapproval, let's dive into how to get one.
1. Assess Your Finances
The first step in obtaining a preapproval is evaluating your finances. Take a look at your income, assets, debts and credit score — you want to make sure you've done everything you can to get the best possible mortgage terms based on your financial situation.
Ensure that your credit report is accurate and free of errors. A higher credit score generally translates to better loan terms, so it's beneficial to address any issues that might negatively impact your score.
If you think you need financial assistance, several types of home loans are available, including Federal Housing Administration (FHA) and adjustable-rate mortgages. Speak with a loan officer from an FHA lender like Key Mortgage to learn more about FHA loan products.
2. Gather Documentation
To save time, get your documents in order now. The documentation you need may vary, but typical requirements include:
- Proof of income (pay stubs, W-2 forms, tax returns)
- Asset statements (bank statements, investments)
- Identification (driver's license, passport)
- Debt information (credit card and loan statements)
Having these documents readily available demonstrates your preparedness and expedites the lender's evaluation of your application.
3. Choose a Lender
Selecting the right lender is important, which is why you'll want to shop around. Research various lenders and compare their rates, fees and customer reviews. Consider factors like responsiveness and transparency. Your agent may have a preferred lending partner — our lending partner Key Mortgage offers a SecondLook review to make sure you're getting the best rate.
When it's time to request a preapproval, be mindful of the timeframe. Multiple credit inquiries within a short period typically count as a single inquiry, which will minimize the impact on your credit score.
4. Apply for a Preapproval
Once you've chosen a lender, it's time to complete the preapproval application. Be thorough and accurate when providing your financial information — any discrepancies can delay the process. The lender may also ask for additional documentation or clarification on certain aspects of your finances. Having a fully underwritten preapproval will save you time and minimize surprises throughout the loan process.
5. Review the Terms
After applying, the lender will review your application and determine whether to preapprove you for a loan. If approved, carefully review the terms, including the loan amount, interest rate and any conditions or contingencies.
As you can see, getting preapproved is a valuable step. It provides clarity on your budget, gives you negotiating power and streamlines the purchasing process. By following these steps and being prepared, you can increase your chances of securing a preapproval and making your dream purchase a reality.
