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In many housing markets across the country, particularly where we see very low home inventory numbers in the West, the amount of buyers searching for homes greatly outnumber the amount of homes for sale. This has led to a very competitive marketplace and in some areas; homes going for well over asking price. One buyer may need to stand out significantly from another buyer. One way to show that you are serious about buying your a home now or in the very near future, is to get pre-qualified or pre-approved for a mortgage before starting your search. However, even in areas with higher inventory to choose from, knowing your budget will give you the confidence to know if your dream home is within your reach. Freddie Mac lays out the advantages of pre-approval in the My Home section of their website:
“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.”
One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.” Freddie Mac describes the 4 Cs that help determine the amount you will be qualified to borrow:
1. Capacity:Your current and future ability to make your payments.
2. Capital or cash reserves:The money, savings and investments you have that can be sold quickly for cash.
3. Collateral:The home, or type of home, that you would like to purchase.
4. Credit:Your history of paying bills and other debts on time.
Getting pre-approved is one of many steps that will show home sellers that you are serious about buying and it often helps speed up the process once your offer has been accepted.
Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so as well.