The mortgage process can be very terrifying and intimidating to most first-time homebuyers. There are a lot of paperwork and documentation to do, credit checks to pass, and seemingly endless nights of worrying if your loan is going to be approved or not. This need not worry you too much though if you know how to prepare yourself and your finances for the big financial decision of buying a house.
The Need to Prepare
Many mortgage experts will tell you that you need at least six months to a year before you can finally shop for a new home. You have to study your finances to know the amount of cash that is going in and cash that is going out. A new home is going to be a huge dent in your monthly budget, so you have to be financially prepared to meet that obligation without fail.
If you have huge debts to settle, then you need to start reducing your debt obligations immediately. The earlier you settle your debts, the earlier you can save money for the home’s down-payment. Also, having huge debt obligations will hinder the chances of your home loan’s approval. After all, no lending company will want to lend you money knowing you have a lot of debts to settle. If you do find a lending company that will loan you money, the interest rate will be so high it will take you a much longer period of time to pay it all off.
If you want your home loan to be approved, preparation will be the key. You need to have your finances in order and your debts settled well ahead of time so there won’t be any problems that will cost you your home loan approval. Your finances should also be able to cover your monthly home payments and bills so you will not lose your home before the sale is complete.
The Need for Pre-Qualification and Preapproval
In a nutshell, pre-qualification simply means you “might” qualify for a loan. You have given the lender your papers, and based on that, they have given their “yes” or “no.” This, however, does not mean that you are approved for a mortgage.
To be approved for a mortgage, you have to get pre-approved. This means that, with your papers and documents, the lender has finally checked your credit history; has verified your assets, liabilities, and income; and has determined your credit-worthiness. After assessing your financial picture, including your credit history, your loan amount will be determined. That is, if you meet their requirements.
The importance of preapproval is that you will know the amount of money that you can borrow, giving you a rough idea of your monthly payment. Preapproval also gives you more leverage when it comes to negotiating with the seller and your real estate agent. They know you are financially qualified for a loan and that you are committed to a purchase. It will make it easier for you to negotiate fees to your benefit.
Owning a new house can be pretty scary and daunting, especially if you are a first-time homebuyer, but these tips will help make it easier for you. It will help you get approved for a home loan faster, and it will also help strengthen your negotiating power with the seller and real estate agent.
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Jennifer Dalley is a blogger for Hayden Homes. She specializes in mortgage tips and advice for first-time homebuyers.