Getting a Realtor is typically the first official step you’ll make on the house hunt. But once you have a Realtor, they will refer you to an imperative part of the homebuying process—getting pre-approved by viable lender. This is such an important step and, as real estate agents ourselves, we consider this to be step one.
What is pre-approval?
Unless you plan to buy a house in cash, a pre-approval is a formal acknowledgement by a bank or lender of the amount of money you can borrow to purchase a home after some general underwriting (aka research and assessment). Essentially, pre-approval gives you, your real estate agent, and home sellers an educated estimate of your affordability.
How does the bank decide how much you are “approved” for?
While every lender is a little different in offerings or loan programs, they all decide affordability based on the same elements: salary, debt, cash, and credit score.
How do I engage the pre-approval process?
Your real estate agent will likely suggest a lender they trust and know to be reliable. You can always reach out to your preferred banking institution (look for “mortgage consultation” or “home loans” on your banking webpage), or independent lenders that pop up with a quick google search. Additionally, we often recommend you reach out to multiple lenders. This can give you confidence in the preapproval amount, and multiple working relationships with lenders that offer different programs. With these relationships established, you’re one step closer to an easier close of sale.
What do I need to get pre-approved? Does it take long?
You’ll need tax returns for the last 1 to 3 years (it can vary), paystubs or pay statements, bank statements, and sometimes even retirement fund statements (ie: ROTH or 401k balances). The process is fairly quick—about 25-30 minutes to fill out your information and upload supporting documents. Typically, a lender turns around a pre-approval letter within 24-48 hours.
Why is it so important to get pre-approved?
While you may have an idea of how much money you want to spend on a home, you may not understand how much money a lender will approve you for. The pre-approval not only helps you and your real estate agent understand what you can afford, it also helps you better grasp the monthly payment you’ll be taking on. Knowledge is power! Sometimes, a client realizes through the pre-approval process that they aren’t’ ready to buy or cannot afford what they’d like. The pre-approval process, discussions with lenders, and your trusted realtor can give you the information you need to plan to buy in the future if not now. Maybe you need more cash in savings. Maybe you need to work on your credit score or tackle existing debt. Whatever it is, the pre-approval helps you understand it.
When should I get pre-approved or talk to a realtor?
Now! Pre-approvals are free. Talking to a realtor is free. If you are even thinking of buying a house, or think you’d like to in the next year or two, talk to the experts who can help you TODAY. You may need the time to prepare, or you may just enjoy knowing what you can afford so when that online house hunting bug stings you, you’re not clicking homes outside of your reach or tracking neighborhoods that aren’t a good fit.
Buying a house is typically the biggest financial decision you’ll make; take it seriously by doing your homework.
Oh, and use us as your Realtors 😉
call us aduplexla.com