This might hit you as a strange bit of advice — but, if you want to find the home of your dreams, don’t go house hunting. At least not at first. Instead, get prequalified for a mortgage loan. Here’s seven reasons why:
- It Can Save You a Lot of Frustration – Homebuyers can often spend a lot of time looking at homes they can’t afford and often learn the truth the hard way. They find a place they love — and then have their hopes dashed when they find out they don’t qualify for a mortgage loan in the necessary amount.
- It’s Free! – Prequalification is absolutely free.
- It’s Relatively Simple – Your lender will ask you to provide proof of income (W-2 statements, tax returns and maybe pay stubs), proof of assets (bank statements) and identification (driver license and Social Security number).
- No Obligations – Getting prequalified doesn’t mean you have to take out a mortgage loan or buy a house. Your prequalification comes with no obligations and can help determine if the time is really right for you to buy a home.
- You’ll Learn Your Price Range – With prequalification, you’ll get an idea of what loan amount you qualify for — so you can target a specific price range during your house hunting.
- You’ll Get a “Prequalification Letter” – You’ll get a letter from your lender saying that you qualify for a certain loan amount. Why is this important? It lets real estate agents and sellers know you’re a credible buyer who can make a legitimate offer on a home.
- It Speeds Things Up – Finally, with prequalification, your lender will already have most of the information they need to approve your final mortgage application. This also helps expedite closing on your new home.
A Couple Of Precautions About Prequalification
Limited Time Only
Your prequalification letter will only be valid for a specified period of time. Be sure you’re serious about making a purchase before getting prequalified. Getting prequalified or applying for a mortgage loan multiple times will result in multiple credit pulls — which can potentially damage your credit score.
Show the lender you will still have cash reserves. Ideally, after you cover your down payment and closing costs, you’ll still have some cash reserves saved up. You don’t want to move into your new home without any money in the bank. An emergency fund with three to six months living expenses can protect you from unexpected home repairs or loss of income.
The down payment, closing costs and emergency fund — once you add everything up, the numbers can be quite intimidating. With the right preparation and planning, though, you can enjoy the thrill of owning your new home along with a comforting sense of stability and financial security. Stick around for our next segment where we cover The Buyer Agent.