If you’re in the market for a new home, perhaps the most crucial step to take is to prequalify for a mortgage. Once you have prequalified, it will save you time and strengthen your offers.
Prequalification means you have your foot in the door when it comes to buying a house. If you’re prequalified, a bank has reviewed your financial information, credit reports, and work history and has preliminarily decided it will give you a loan. The banking institution will also tell you how much you qualify for.
When you’re prequalified, you’ll know approximately how much your monthly payments would be and you can create a home budget. Also, you won’t need to waste time looking at homes you know you can’t afford and you’ll be able to narrow down the neighborhoods and type of home you’re looking for.
If you’re prequalified, it’s one step closer to getting preapproved for a loan. Once that happens and you make an offer on a home, you’ll be at a competitive advantage over any other would-be buyers because you have your funding in place.
When you apply to be prequalified, the lending institution will review:
- Your employment. The amount of time you and perhaps a spouse or partner have been working at the current employer. If you’ve only been at your job a few months and have a track record of bouncing from job to job, you’ll have a harder time getting prequalified. The bank will also consider how much money you make at your job. Naturally, the more you make and the longer you’ve been at your job, the better in the eyes of the lender.
- Your debt. Your credit history will be scrutinized to make sure you’re a good credit risk. If you pay your bills on time, have a low debt to limit ratio (meaning you’re not maxed out on your cards) and show you’re a responsible borrower, you have a greater chance of being prequalified and getting a lower interest rate.
- Your down payment. The bank will take into account how much money you have for a down payment. The more you have, the better position you’ll be in.
Before you scout out neighborhoods or browse online, the first thing to do is to prequalify for a mortgage. Brightpath Mortgage can answer any of your questions and get you started on your path toward homeownership.