Before you even begin your home search, you should review your budget and determine how much you can afford to pay for a house. Sure, you can do some simple calculations to figure out how much you can buy, but there are other factors that affect your loan amount so it is best to talk to a lender before you start your home buying journey.
To get an idea of the expenses that you will be dealing with as a homeowner, here is a chart that shows the typical expenses associated with owning a home.
However, making an estimate on your own is simply not good enough. You need to take it a step further and talk to a loan officer. This process is FREE, and a good loan officer can get you pre-approved within 24-48 hours.
After you discuss your financial situation and home buying plan with a loan officer, you will find out how much the lender is willing to let you borrow and the best loan option for you. The loan officer will also issue you a pre-approval letter, which you will need to submit an offer.
The truth is Sellers only want to work with a well-qualified home buyer. This is true, regardless of the market condition. Without a pre-approval letter, your offer will not be taken seriously, or might not be considered at all.
Additionally, there are many good reasons why you should start with pre-approval.
#1 – You will know how much house you can afford.
Knowing how much you can borrow saves you a lot of time from looking at properties that are out of your price range. It will prevent unnecessary heartbreak when you fall in love with a house and found out later on that it is out of your reach.
#2 – You will be better prepared.
As part of the pre-approval process, you will know roughly how much money you need upfront for your purchase and how much you’ll be paying per month going forward. This knowledge will put you in a homeowner’s mindset and helps you make a better decision.
#3 – You can make an offer more quickly when you found the right house.
You need to submit a pre-approval letter with your offer to show that you are qualified to make the purchase. In a fast-moving market where multiple buyers compete for the same house, it is vital to have your pre-approval ready so that you can make an offer quickly.
#4 – Your offer will be more attractive than competing offers.
With a pre-approval, your offer will be stronger than those with pre-qualification or with no financial qualification.
If you don’t know where to start, ask your Realtor. A good Realtor has a network of good lenders that you can work with and get pre-approved quickly (usually within 24 hours), and help you save money by helping you shop for a lender that will provide you with the best services, rates, and fees.