Buying Your First Home in Phoenix Arizona Part 3 - Getting Pre-Approved for a Loan
In Part 1 of Buying Your First Home, you discovered why buying a home is the right choice for you. In Part 2, we discussed how to hire the perfect agent. Now, we're ready to find out why it is so imperative to get pre-approved for your loan BEFORE you go out shopping for your first home.
Getting Pre-Approved for a Loan
After deciding why you're buying a house now and finding the right real estate agent, the next step in the home buying process is getting pre-approved for your home loan. There are many benefits to pre-approval, which include:
- Knowing how much home you can afford will help you focus your house hunting.
- Being pre-approved demonstrates to the seller that you're serious and ready to buy a home now. It will also help you stand out if you are in situation where you are offering one of several bids being made on a particular home.
- The final mortgage application process will go faster, since you've already provided a lot of the required information.
How to Get Pre-Approved for a Mortgage
You can save yourself time in the qualification process by preparing some information before you begin:
- An idea of the size of loan you think you can qualify for
- The monthly payment you will be comfortable with
- How much of a down payment you plan to make
- Personal information
- Your Social Security number
- Your income and expenses
Ask Your Agent to Refer You to a Lender
If you do not already have a mortgage lender you would like to work with, ask your REALTOR® for a list of trusted lenders she/he has worked with in the past. Normally, they have lenders they use regularly and can recommend several for you to interview. You might want to speak to all of them to determine who will work best with you.
Closing costs, or the fees you pay to get the loan, can amount to hundreds or thousands of dollars. They generally total about 1 to 2 percent of the total cost of the home. They include fees that your lender charges, including points, and also various third-party fees. You can potentially save yourself a lot of money by taking the time to compare the fees before signing on with a particular lender.
Some Typical Lender Fees
Some Typical Third-Party Fees
Getting pre-approved generally takes very little time. You may be able to complete the process over the phone with a trusted lender. Most lenders will check your credit prior to giving you a formal approval letter.
Good credit is essential for a first-time home buyer. When buying your first house, you can be sure that the mortgage lenders will review your credit with a microscope. Lenders want clients who can pay their bills on time and who don't owe too much to anybody else. Automated bill-paying services can help you stay on top of your bills. In the year leading up to your pre-approval for obtaining a home loan make sure you don't apply for credit cards just to get the free bling, and stop shuffling your debt around. Lenders don't really want you to carry a balance near your limit, and that can happen if you consolidate all your credit debt onto one card. Your score can dip temporarily when you make any big change - even for the better.
Good credit can lower your mortgage interest rates, potentially saving you hundreds of dollar a month. Make sure to order a credit report (usually free online). This way, you can dispute any mistakes ahead of time - but the most important thing is that you build up good credit from here out.
Your down payment will likely range between 3.5 to 10% of the sales price of the home. This money can come from your savings, or a family member might be able to assist you with the down payment as a 'gift' which is not required to be repayed. You will also need to be able to cover approximately 3% closing costs and pre-paid items. This brings the total to around 6 to 10% of the sales price needed as your initial investment. If you are a VET you may be eligible for a 0 down loan with very little closing cost. Ask me how!
Pre-approval is not complicated - it's just a little time-consuming. But trust me - you will be So glad you did it when it comes time to start looking at houses. Speaking of which, that's our next topic! Finding the perfect home and making an offer. See you then!
Buying Your First Home in Phoenix Arizona Part 3
Anna "Banana" Kruchten
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