When looking to purchase a home, the most important step of the process is to get pre-approved for a home loan. Without getting pre-approved, no Realtor or seller will take you seriously. Meeting with a lender is the next step I recommend all clients after their free consultation. As long as there is no major concerns or unrealistic expectations, I will set up a meeting with a preferred lender or recommend you meet with the lender of your choice in order to get the process started. Aside from getting you pre-approved, a lender will help you determine how much house you can afford, check your credit and determine how much of a down payment you need.
- Determine how much you can afford: Only you know what a comfortable monthly payment for your mortgage is. Lenders will pre-approve you for what they think you can afford based on your debt to income ratio. It’s completely up to you to decide how much to actually spend. You do not have to spend the whole amount you’re approved for. I recommend clients to reverse their thinking and start with how much they want to pay per month. Once you determine the right amount, we’ll inform the lender and have him determine what home price will yield that amount. For example, if you only want to pay $3,000 per month then we will only focus on homes that are priced to result in that monthly payment even if you qualify for a higher amount.
- Checking your credit score: I recommend you check your credit report before you allow a lender to run your credit. Lenders have to run your credit to determine if you can qualify for a loan. You want to make sure your report is mistake free. Annualcreditreport.com is a secure website where you can get a free copy of your report once a year. If your report looks good, then have them run your credit. If your credit meets their requirements then you’ll be able to continue. Or, if it’s not where it needs to be, lenders have advice on how to improve it. Keep in mind your credit score plays a part in what interest rate you get. It can also determine if you qualify for any special buyer programs. The better your score, the better off you’ll be.
- Make a down payment plan: The ideal down payment is at least 20%. If you can make that happen I highly recommend you do it. The cost of your loan will be much lower, you’ll get a better interest rate and your monthly payment will be more manageable. However, if you’re not able to come up with the full 20% there’s programs you can take advantage of. An FHA loan is the most common of those programs. This type of loan allows you to make a down payment with as little as 3.5%. There’s also programs that offer the opportunity for $0 down payment such as CALHFA and GSFA. The downside to these types of programs is they usually result in higher interest rates, and higher monthly payments. If you’re a Veteran or an active Service Member, you are eligible for a VA loan that also allows for $0 down payment with none of the extra fees that result from not having the 20%.
- Documents Needed To Get Pre-Approved: All lenders will need documents to support your pre-approval. Depending on your financial situation, and type of employment, you may need to provide more documents. Below you will find the basic documents most buyer’s will need to get started.
- Loan application (information will vary by lender)
- Tax returns for the last two years
- W-2 Statements for the last two years
- Paystubs for the last 2 months
- Bank statements from savings, checking etc.
- Any other statements stating owned assets such as 401k or retirement accounts.
Hopefully this article can save you time, money and a lot of stress! If you have any questions, feel free to reach me at my information below!
Give me a call today at (619) 564-2668 or email me at Favio@livingthesandiegolife.com for more information or to schedule a tour of the neighborhood! DRE#02009023
