Deciding What You Can Afford
The first step in buying a home is determining how much you can afford. This first step to homeownership should be done before you step out the door to look for a home. Keep in mind lending rules vary. Some programs and even lenders will view your creditworthiness differently. The most important measure is your own; know before you owe! Understand the obligation you are undertaking. Be sure the commitment of savings and monthly mortgage payments is something you feel comfortable with.
There are many resources available that can give you a ballpark estimate of how much house you can afford. The term for this guestimate is prequalification or "prequal." A person or online calculator takes statements from you about your income and savings and comes up with a loan amount and/or price estimate within your income range. Keep in mind a prequal is just an estimate. It is not a loan approval. Some prequalification processes will also pull your credit report. This is a helpful step so you know if your credit is within acceptable guidelines. Seeing your credit report up front gives you an opportunity to correct any errors (see credit reports ADVICE article) which avoids complications or even missing out on a home. If your prequalification does not include pulling your credit, LENDAID recommends using annualcreditreport.com to review your credit report now. If you are a casual home shopper, a prequal and credit report is probably all you need for the greatest peace of mind. For the serious homebuyer, LENDAID recommends contacting a local mortgage professional to take this big first step to homeownership. You will no doubt save time and money, not to mention make your home search far more efficient. Use our independent and unbiased search engine to find an experienced loan officer in your community to advise you.
Your credit score is an important part of the process to obtain home financing. A credit score is a number assigned to a person that rates their creditworthiness. A bad credit score can disqualify a person from getting a mortgage. Certain loan programs have minimum credit scores. In addition, many loan programs charge more for certain borrower characteristics that they consider higher risks. An experienced loan officer can guide you and may even be able to help avoid some of the expensive added costs associated with higher risk profiles. If you don’t know your credit score there are several free sources detailed in our advice column on credit scores.
If you are more serious in your search for a home and know you will buy a home soon you should reach out to a mortgage professional about getting preapproved. Pre-approval goes beyond simple calculations. You actually go through the loan approval process. Pre-approval has many advantages. First and foremost it helps you get a jump on the mortgage process, relieving some of the stress that comes with buying a home. Additionally when it is time to make an offer on a home, your loan officer can supply a preaproval letter. This shows the seller you are not only willing but able to purchase their home. In some cases this may even be required by the seller. Showing you are a well qualified buyer may be the difference in getting your offer accepted. Consult our search engine to find a top rated loan officer to get you preapproved!