If you’re new to the real estate game, you may feel like there’s a ton of information coming at you fast. There’s lots to learn, and face it: it’s a huge endeavor to buy your first home. But don’t sweat it – your Realtor will guide you through every step – that’s our job! … You can count on your Realtor to educate and inform you as well as connect you with all the people and services that are part of the process. First things, first – you’ll need a mortgage preapproval. This is an important step in the process that is imperative to complete before you begin your house hunt. A mortgage preapproval is a ‘verification letter’ of sorts from your bank or lender, outlining the amount of money you are eligible to borrow, at the current borrowing rate available. Your income will be considered, alongside any debt and other payment obligations you have, with the current interest rates factored in to determine how much money the lender will loan. This will enable you to develop a budget for your new home in order to determine how and what you should (or shouldn’t!) focus on shopping for. Obtaining clarity on this detail is important – it could help you realize that pushing an extra 50K higher in your budget is very manageable, which could open up new opportunities that you didn’t believe were within reach… likewise, you may get a reality check and realize that scaling back on the budget is necessary to in order to stay afloat… And shopping for a property that is out of reach financially is both an inefficient use of time, and a set-up for disappointment. For these reasons… securing an updated preapproval is a critical first step when beginning your house hunt to focus your energy, ensure you’re organized, and in a realistic position to be considering a home purchase.
A few pointers to keep in mind:
- Just because you’re eligible, doesn’t mean you need to take it. Remember… every dollar you borrow needs to be repaid – with interest! You’ll also want to consider your lifestyle… Those starbucks visits, that extra fancy cocktail at girl’s night out, the non-negotiable annual vacation… Factor in what you can comfortably afford to commit to your mortgage payment alongside how you like to spend your hard-earned dollars, or determine what you’re willing to adjust to achieve your home ownership goals,
- Your preapproval is usually guaranteed for 90 days, so if interest rates go up, you may continue to have access to preferred rates or terms. Keep in mind: as the prime lending rate has shifted significantly in recent months, the variable rate you may have discussed will also change relative to what your mortgage lender or bank representative was able to secure for you. For this reason – remaining up-to-date when considering a purchase, keeping your mortgage broker informed of your progress, and verifying all details each step of the way is critical.
- Your preapproval is different than a firm approval. This is a biggie that a lot of people don’t understand. Before the lender will offer you a final approval, they may want to verify more information related to your credit and financial standing (though a good lender will have this sorted right off the hop!), and they’ll also want to investigate the purchase they’re backing by way of an appraisal on the home you want to purchase. Long story short – in the unfortunate event that you default on your payments and the lender is required to take back the property, they’ll want to ensure that they haven’t promised more to lend than the property might be worth to sell again, or that it’s a liability they’d rather not be left with. Until the bank has done their diligence on the property you plan to purchase, they will not issue a firm approval.
- There are many mortgage products that exist, and there isn’t a one-size-fits-all. You’ll want to consider terms and conditions – items such as your amortization, how long you’ll be committed to the contract, and whether you prefer a fixed or variable rate. If these things sound like a different language, it’s time for a meeting to further discuss – can’t want to connect!
Working alongside a mortgage broker who you trust is important. Ensuring that your questions are answered and that you feel at ease with that part of the process will enable you to proceed with confidence. Your mortgage broker should be accessible, organized, and on the ball… he or she is an important part of your ‘real estate team’. Not sure where to start? Not to worry… I’m connected to some pretty amazing individuals who can point you in the right direction. I’d be happy to refer you to someone great!