As buyers outnumber available homes for sale in many markets, the market has become very competitive. One excellent way to show that you are a serious buyer is to get pre-qualified or pre-approved for a mortgage in advance of starting your search. In fact, even when the market is less competitive, pre-approval can give you confidence in knowing your dream home budget.
Freddie Mac states, “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.”
There are many advantages to working with a local real estate professional, just one of which is that many have relationships with lenders who will be able to help you with the pre-approval process. A lender will ask you to fill out their loan application and provide information regarding “your credit, debt, work history, down payment and residential history.”
Freddie Mac explains the 4 Cs that will be used to determine the amount you may qualify to borrow:
1. Capacity is your current and future ability to make your payments.
2. Capital or cash reserves refer to the money, savings, and investments you have that can be sold quickly for cash.
3. Collateral means the home, or type of home, that you would like to purchase.
4. Credit is your history of paying bills and other debts on time.
Pre-approval is one step that will show home sellers that you are a serious buyer. It often assists in speeding up the process once your offer has been accepted. Don’t overestimate the down payment and credit scores needed to qualify; you just might be surprised at your ability to achieve pre-approval.
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