There’s a lot to think about when you’re getting ready to buy a home, and while the most exciting part of the process is getting out there and looking at homes to find the perfect one for your family, there are a couple of important steps to take before you start your search to ensure the process goes smoothly. One of those steps is pre-approval.
The question of how much home you can afford is probably the first one you should be asking. There are a couple of ways you can figure this out, but the easiest way is to take your monthly income after taxes, subtract your monthly debt obligations such as car payments and insurance, and calculate your monthly spending on things like groceries and gas, then figure out what is left.
Lenders will do the same thing during the pre-qualification process, although they use a very general calculation that includes only your debt and income. Usually they will allow loans up to about 30 percent of your monthly income before taxes, but keep in mind they don’t know your discretionary spending habits, so if you want to have more money each month for things like entertainment or clothing, you might prefer to borrow less and have a lower monthly payment.
There is a difference between pre-qualification and pre-approval. Pre-qualification usually involves discussing your income, assets, and debt obligations with the lender and they’ll give you an idea of about how much home you could qualify to buy. Pre-approval is the next step, so the lender will actually run your credit and verify the information so they can let you know with more certainty how big of a loan you could get. This is usually guaranteed for up to 120 days, so you can get pre-approved and then start your home search.
It’s important to note that neither pre-qualification nor pre-approval is a guarantee that you could get approved for a loan—that will not happen until you have a home to purchase and a specific loan amount.
The home buying process is an emotional one—you’re deciding on a place where you will spend most of your time, and raise your own family. If you begin your home search and fall in love with a home that is out of your price range, the ones that you could afford might be a disappointment.
Home sellers are also more likely to take you seriously in the search if you have been pre-approved for a loan, indicating that you’re not just browsing but you are in a buying phase.
The good news is that mortgage pre-approval is a quick process, so talk to a Salt Lake City mortgage lender today to find out what you need to do to take this important step.