When thinking about purchasing a home, most people think the first step is to find a realtor. Arguably, the first step you should take is to obtain a pre-approval; not to be confused with pre-qualification. A pre-qualification can be obtained through the My Mortgage Toolbox app to determine what you might qualify for.
On the other hand, a Pre-Approval means that a lender has provided written agreement that you do qualify for a mortgage; and the amount of that qualification based on your credit history and current income situation. This pre-approval will usually outline a specific term, interest rate and mortgage amount; and will specify the length of time this data is valid until.
To obtain a pre-approval in this fashion, an application must be completed which includes that you submit your income and financial history for verification. I will walk you through the process start to finish as well as provide you customized advice based upon your goals, to recommend the right mortgage solution to fit your needs.
A pre-approval will help you determine a more accurate budget and identify how much house you can afford. This information is incredibly valuable to not only yourself, but to your realtor as well. While, you may want to start house hunting in the upper range of your pre-approval, you need to keep in mind that closing costs, on average, are about 1.5-4% of your purchase price. When you're properly armed with the right information, you can factor in these costs to your maximum budget and provide guidance to your realtor for the price range you want to stay within.
It's good to note, that a pre-approval does not limit you to only 1 lender; but, it does guarantee the rate offered to you for 90-120 days. This is especially important if rates start to climb while you're still looking for the perfect home. If rates happen to fall, you'll be offered the lower rate. It's also good to note that when you do finally find a home and put in your offer, a pre-approval provides the seller with peace-of-mind that your ability to secure financing shouldn't be an issue. This gives you an edge up in the increasingly competitive markets we've been seeing.