The prospect of funding a home can be very daunting. You are considering making basically the largest purchase that you will ever make and will be bound to for some time to come. For this reason you want to make sure that you are making the correct decisions about your home and financing before you sign on any dotted line.
The first step in the process is to determine how much per month you can afford and thus how much home you can afford. The first step, if you haven’t done so already, is to look at your monthly budget and determine how much per month you can afford for a mortgage. After you know how much you can afford you need to determine how much your mortgage will cost you per month to determine if it is affordable. There are many ways to do this but perhaps the easiest way is to use one of the many free online mortgage calculators to determine what your monthly payment will be.
Once you have an idea of what you can afford and know that you wish to proceed further you can start the process of finding a lender. At this point you are looking to get pre-approval for a mortgage. The pre-approval will allow you to know exactly how much you can afford, what it will cost you on a monthly basis and allow you to place a bid on a property.
In order to complete the pre-approval process you will need to go through your usual lending interview but in a little more detail this time. The lender will want to see your credit rating, income details, and assets and know a little about your personal history and where you are planning on living. Once you are pre-approved you will receive a letter stating how much you are pre-approved for thus proving you are able to purchase the homes you are looking at.
Interestingly enough, the pre-approval isn’t really the loan application part of the process. Applying for the loan doesn’t happen until after you have found a property and have a singed sales agreement. Once you have a signed sales agreement you can revisit your lender and finalize the loan process. This time you will know exactly how much per month you are going to have to pay.
At this point you enter into the underwriting phase of the loan process. Underwriting is when the lender is evaluating your final application and then underwriting, or guaranteeing, your loan. The lender is looking to determine several things such as can you make regular debt payments, is the property worth the same or more than they are lending in the event of a default and do you have enough free assets to use as collateral? While this process can be painful and slow, it should be no problem if you have already been pre-approved for a loan.
As you can see, the process of buying a home is a little complicated and may take longer than expected. However, if you have been good with your credit, and thus can be pre-approved for a mortgage, the process will go smoothly and you will soon be in you new home.