If you are looking into the home buying process, and unless you have the resources to qualify for a mortgage, you may not have as powerful of an offer to make. Step one in the buying process should be to determine your financial status before signing an offer.  It takes more than a good credit score and a job (source of income) to qualify for a mortgage!

1.        Have you been prequalified or preapproved for a mortgage? In a market like we see right now with low inventory, you will be in a much better position

2.       to put forth a stronger offer showing pre-qualification. Trust me, when I have my “Listing Agent hat on,” and receive an offer from a Buyer’s agent on a listing with no pre-qualification or proof their Buyer can even close on a sale, it is kind of deflating!  It makes an offer weaker not to show upfront that you have been at least pre-qualified.  To get this done too it takes just minutes!  You can go online to almost every lender and get pre-qualified with 10 minutes of your time!  I know people ask, “but how long will the pre-qualification last once we have it in hand?” My most trusted lender tells me that as long as employment does not change and no other major purchases are made during the home buying process, that generally credit is not needed to be pulled again to simply update a pre-qualification letter! This means the pre-qualification can be updated every 30-45 days or so with no issues.

3.       Have you got the funds to cover down payment and closing costs? Ideally, as a buyer you should have 20 percent of the home’s price as a down payment, however today I see most going with FHA (3.5% down payment) which allows you to use gifts from relatives or your own funds. I also see Conventional loans with lower MI or mortgage insurance that have down payments as little as 5%.  Closing costs, which the biggest part of this is lender origination fees, can be 3- 4.5% depending on the type of loan. VA in certain situations can be higher.  Much of the time we ask Sellers to pay all or part of these closing costs, but note that what you are doing is financing them into the purchase price. It is a feel good for the seller to agree to pay these costs that are yours as a Buyer, but they are going to negotiate the sales price higher due to factoring them into the deal for you.  As they say, “no such thing as a free lunch.”

4.       Is income sufficient to afford your home? Buyers should spend no more than 28-32% of total income to cover PITI (principal, interest, taxes, and insurance).

5.        Have good credit? Confirm with your lender if you have good credit and review your credit report. It might be very well worth your time to fix and correct issues in your credit that might cause issues on final loan approval once you have that dream property under contract!

6.       Have too much debt? This is the other ratio you have to walk through as it can be a minefield! If you have high revolving payments on car payments, credit cards, etc., you may not qualify for a mortgage. More correctly said, you may not qualify for as much mortgage as you are hoped you would!  Ideally with the new mortgage payment included, your total monthly debts should be below 50% of your income.  Car payments for example are notorious in lowering the amount of house you can afford because they are high monthly payments.  A credit card with a high balance may not be an issue, as long as it does not impact your credit score aversely, because the lender will look at the required minimum payment (usually about 3% of the balance) not the balance on the card.

I get calls from Buyers who feel that just because their credit scores are high enough to qualify for a loan, they are “gung ho” and ready to go look at homes!  It takes more to get educated in what you can afford, can you afford a home, and this process makes you ready to jump on that right property when it does hit and makes your offer all the stronger!  If I have multiple offers come in on a property I have listed and one Buyer does not have a pre-qualification letter and the other is a cash offer, it is a no-brainer which one the Seller will take.  Give yourself that fighting chance!