Is now a good time to buy a house? The answer is a resounding yes. According to Barbara Corcoran, the renowned businesswoman and Shark Tank star, getting into the real estate market is crucial. In today’s competitive market, it’s challenging to catch up if you hesitate. As Corcoran herself experienced, delaying a purchase can result in missed opportunities and delayed financial growth.
While interest rates may be higher than they were a year ago, the current housing inventory shortage has created a supply-demand imbalance. This has led to ongoing competition among buyers and a stable housing market. In fact, homes in the Greater Twin Cities Metro Area have appreciated by an average of 4.0% year over year.
So, how do you position yourself to enter the game and become a homeowner? The first step is getting pre-approved for a mortgage. Let’s explore why pre-approval is crucial and how you can get started on your journey.
Why Get Pre-Approved?
Obtaining pre-approval provides you with significant advantages as a buyer. It gives you bargaining power and allows you to make reasonable offers to sellers. Additionally, pre-approval helps determine the maximum loan approval amount, identifies potential obstacles early on, and streamlines the buying process. By getting pre-approved for a home loan, you save valuable time and effort.
Pre-Qualified or Pre-Approved?
While pre-qualification provides an estimate of affordability, pre-approval holds greater value. Pre-approval involves a comprehensive check of your credit, assets, and employment by a mortgage lender. This results in the approval of a specific loan amount. Lenders evaluate important factors such as your debt-to-income ratio, loan-to-value ratio, credit history, FICO score, employment history, and income.
The Pre-Approval Process
Many sellers require a pre-approval letter before entering negotiations. To obtain pre-approval, you’ll need to provide proof of employment, assets, income tax returns, and a qualifying credit score. Typically, mortgage pre-approval letters are valid for 60 to 90 days.
Selecting Your Loan Type
Collaborate with your loan officer to select the best loan type that aligns with your needs. Most loan types conform to guidelines set by Fannie Mae and Freddie Mac, which means they have specific requirements and criteria. Conforming loans generally offer more favorable terms and interest rates compared to non-conforming loans.
Preparing Your Documents
To complete a mortgage application, you’ll need to provide your social security number, proof of income, a list of assets and liabilities, employment verification, marital status, number of dependents, and other necessary documentation.
Loan Estimates and Full Approval
Once pre-approved, your lender will provide a loan estimate that outlines terms, loan amount, interest rates, and estimated costs. The final approval process involves an appraisal and finalizing the loan for the chosen property.
In today’s low-inventory and highly competitive market, getting pre-approved for a home loan is crucial for homebuyers. It provides clarity on your financial capabilities and strengthens your bargaining position. Pre-approval letters make your offer more appealing to sellers, increasing your chances of securing your dream home.
If you haven’t found a mortgage lender yet, feel free to contact us. We can connect you with trusted experts in the field. Together, we’ll take the necessary steps to get you in the game and build your net worth as a homeowner.