Purchasing a home is one of life’s most sought after milestones. Whether you’re purchasing due to relocation or maybe starting a family, preparing for the mortgage process can seem daunting. As a mortgage lender, I see one key factor in successful homebuyers: preparation. It not only entails the financial aspect of homebuying but also includes understanding the general process that comes with applying for a mortgage. Both are equally important and contribute greatly to the mortgage approval process. So, before you start scrolling through homes on the internet, let’s look at the different factors to review before starting your homebuying journey.
The first stop- reviewing your available assets. This includes ensuring you have a clear idea of your available funds in a variety of accounts. For mortgages, this will primarily be your liquid accounts – checking, savings, etc. Reviewing your existing funds will provide a figure that can be used towards a down payment and closing costs. For a first-time homebuyer, this step will be important in deciding what type of loan you should be seeking and may also indicate if down payment assistance will be needed. Aggregating assets may look a little different for existing homeowners. For someone who already owns a home, the existing equity may also be considered, along with liquid assets. The key takeaway in getting your assets in order is to ensure you are financially prepared to make the purchase, but also provides an opportunity for your mortgage lender to share mortgage product options catered to your needs.
From reviewing assets, we want to do a summary of existing liabilities and debts. A mortgage lender will be considering the projected payment on the property you intend to purchase, as well as the property taxes and insurance for the home. Additionally, a copy of your credit report will also be reviewed, outlining any existing liabilities. Reviewing your liabilities will help you prepare a budget with a mortgage payment in mind. Homeownership is great, but sustainable homeownership is the long-term goal. Even though a lender may be able to qualify you for a certain price point, it is also your responsibility as a prospective homeowner to assess how the mortgage payment will fit into your monthly budget and lifestyle. Taking the time to review your credit report and existing liabilities will also help catch any errors or credit items that may need to be resolved. Being aware of any negative credit factors will allow you to consult with your lender and prepare an action plan to clear any discrepancies.
Assessing your finances and credit report leads you to the next important step – contacting a trusted mortgage professional and getting prequalified. While you may feel as if you need to have all the information before starting the homebuying process, this should not be a reason to delay the homeownership process. A mortgage lender is responsible for sharing various underwriting criteria, such as down payment and credit score requirements, as well as informing you of the different mortgage products that are available. This step then opens the door to getting prequalified.
A prequalification letter entails having the mortgage lender review several credit factors such as income, credit scores, liabilities, and overall credit worthiness to determine what purchase price and loan amount you qualify for. The prequalification step is an excellent opportunity for you to get familiarized with additional homeownership expectations besides just the mortgage payment. Having a trusted lender and realtor will provide guidance and insight throughout the process. With a pre-qualification letter in hand, you are now ready to begin home shopping!
The home-buying journey may look different for everyone due to varying circumstances. Homeownership does not begin when you make an offer on a home but rather when you start the process by reviewing your finances, speaking with trusted real estate professionals, and gathering a game plan to finalize the purchase. The most important element in the process is proper preparation, so a prospective homeowner is equipped with the needed information and documents to close on their dream home. Whether you are just having a lingering thought of purchasing or are ready to apply for a mortgage, there is never a bad time to get informed on the possibilities of making the dream of homeownership come true.
Brenda Peralta
Mortgage Loan Officer
NMLS 2029954
