Depending on where you plan to buy your next home you are likely to find there are more buyers than the houseson the market. This situation has created a very competitive market in which you need to stand out from the crowd if you want to be the one who closes on your dream home. One of the best ways you can help make yourself stand outis to take the time to get pre-approved for a mortgage before you even set out to start searching for your new home.
Even if the Market Inventory is Good
In reality, it doesn’t really matter if you live in an area where buyers outnumber homes for sale or vice versa, you should always take the steps needed to make sure you are pre-approved for a mortgage. According to Freddie Mac, ” It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”
Getting pre-approved for a mortgage achieves two things. First, it lets sellers know that you are serious and second, it lets you know what you have to work with regarding your budget. Working with a local realtor to buy your next home has many advantages, including that they have connections with a wide selection of lenders who can help you find the best mortgage to meet your needs.
The Four “Cs” of Mortgage Lending
When it comes to determiningif you are qualified for a mortgage and if so, how much you are qualified to borrow, Freddie Mac says these four “Cs” are used to determine eligibility by many lenders:
- Credit– Your credit score and history of paying bills on time.
- Cash Reserves & Capital– This includes cash on hand, savings, and any investments you could sell quicklyif needed.
- Capacity– Your current ability to pay your bills including your mortgage along with all your other bills.
- Collateral– The type of property or home you are trying to buy.
Taking the time to get pre-approved for a mortgage is an excellent way to show sellers that you are a motivated buyer. This can also help speed up the entire closing process after your offer has been accepted by the seller.
One of the biggest mistakes made by those looking to buy a new house todayis thinking they don’t have enough for a down payment and that their credit scores are too low for them to be able to secure a mortgage. What you may find, once you get serious about buying a house and obtaining a mortgage is that not only can you qualify for a mortgage but also that you can qualify for a larger amount than you initially thought.
This, of course, might give you the opportunity to look in different neighborhoods and bigger or better houses. Be sure you work closely with your local realtor not just find your dream home but also to find lenders who will work with you to give you the best possible rates on the mortgage you need for your next home.