Post # 1
DH and I are getting to a point where we are seriously considering shopping for a house. Unfortunately, due to the house prices in our area, we’ll have to go with a loan that includes PMI at first, because if we wait until we can put 20% down, it may never happen. However, we are currently 100% debt-free and have great credit scores, decent savings (with a plan in place to increase them substantially), and stable incomes.
My biggest question is this – how do we find out how much we can get a loan for? Do we need a pre-qualification or pre-approval to look for houses? I keep reading that the next step is to get pre-approved for a mortgage, but that pre-approvals last 60-90 days. We’re looking much more long-term than that, but we want an idea of how much we would be approved for… I’m just really confused about this step. Please help!
Post # 2
You can even just go online and get pre-approved. That’s what I did with my first house. I go in knowing how much I’m willing to spend and get pre-approved for that amount.
Post # 3
you can get a pre-approval at any time. That will let you know what range you can look in. you should also look at your own budget and decide how much per month you can pay (I think 30% of take home pay is the guideline but in more expensive areas like NYC that might not work out)… you might end up approved for much more than you can realistically afford
once you actually find a house and start the loan process they will generally have to re-approve you again but its not really a big deal (Just sending over some new paperwork ie bank statements, pay stubs)
the big thing to know is be very careful with your credit over the next few months – do not take out or cancel any credit cards, don’t take on any new loans (ie car) and be ready to explain any deposits into your account and potentially have family/friends vouch for any large deposits (ie my mother gifted me some money because a CD that I had with money from my grandfather wasn’t ready for renewal and she had to document that it was a gift etc)
Post # 4
- Wedding: January 2013 - Harbourfront Grand Hall
LadyBear: Well, no you don’t need a pre-approval to shop for a house but once you find the right hose you’re going to want that pre-approval. Getting it is NBD, so why not?
Post # 5
- Wedding: October 2011 - Bed & Breakfast
Start by looking at your budget and figuring out how much you can comfortably afford to pay each month for Housing (mortgage, owners insurance, property taxes, and PMI). Then see how much that monthly payment amount will actually get you. now you know the number that you want to ask for when you go for pre-approval.
If you are still a while off from buying (more than 3 months before you are actually ready to start shopping), just ask for a pre-qualification. A pre-qual will be based solely on the information you give them (they don;t need to see bank statements, w-2s, etc.) This is important because for a pre-qual they will not pull your credit score. having a hard pull of your credit will drop your score a bit, so there is no sense in doing a hard pull until you are actually ready to get serious about shopping. A pre-qual will give you a general sense of whether your number matches up with the bank’s idea of what they are willing to lend to you.
Once you are actually ready to shop, then you go for pre-approval. this time they will require documents to prove your income and assets, and they will pull your credit report and scores from all 3 bureaus. If you were honest during the pre-qual and nothing has changed drastically since then, your pre-approval amount should be the same as your pre-qual amount.
Post # 6
Call a mortgage company first, and get pre-approved. Typically, you can afford three times your annual salary in house. So if your husband makes $100,000 a year, and you make $100,000 a year, you can quaify for $600,000; Now if you have $50,000 in savings to use as a down payment, you can offer on a $650,000 house, because you have $50,000 and the bank has agreed to give you $600,000. Don’t go with a big bank unless you’re sure you and the seller won’t mind waiting two-three months to close. We went with a small local mortgage firm and they closed us in two weeks if not less. We actually lost a house because of trying to close with Suntrust, and it cost us thousands of dollars that we just lost and could never get back.
Post # 7
You can call any bank or mortgage broker and get preapproved, but I would just figure it out myself. Look at your incomes, debts, savings plan, retirement savings, desired cushion etc and figure out what you’re comfortable paying. More than likely, it’s much less than what a bank will loan you. By our own calculations we set our budget at 500-550k, but were preapproved for upwards of 700k, which is insane. We’d totally be house poor if we had went with that number.
Post # 8
LadyBear: One thing I wish we had done before looking was go “mortgage shopping”. Go around to different banks and lenders and see who can get you the best package. We ended up with a GREAT mortage from a credit union, but the service was TERRIBLE!!!!
Post # 9
lovekiss: We are definitely more than 3 months out from looking. Darling Husband is in the process of applying for a new job that will pay the same or slightly more than he makes now… does that count as a drastic change between pre-qual and pre-approval?
Meant2Bee: ForeverAndEverAfter: Thanks for the good advice! We’ll shop around and look into smaller banks/credit unions in the area.
pinkshoes: Yeah, we’ll definitely figure out our own comfort range, but we’ll still need to find out if we can get approved at all (or for the amount we are comfortable with).
Post # 10
LadyBear: We just closed on a house last month. At first we went looking at houses after deciding how much we were willing to spend. When we saw a house we liked that accepted an offer that same day from someone else, we decided immediately to get pre-approved, that way we would not miss out on a house again. We called around to different banks, but our realty company actually offered the best rates, so we went with them. We told them how much we wanted to spend, and were told we were actuallyapproved for much more (We never did find out that amount since we stuck to a set amount we were willing to spend).
Post # 11
Pre-approvals are great because they give you the range you can get approved for, but it’s a lot of work (you have to gather all the information and get it to the lender for them to run the numbers), and the letter you ultimately get expires after three months. Good news is that updating it is really simple, and likely would just require more recent bank statements and pay stubs.
I would just get your initial pre-approval to get a figure you know you can get, figure out what you can afford, and go from there.
I live in a super expensive area too, so I feel you on the PMI. We bit the bullet and went ahead with it, and it’s honestly not terrible. You just have to make sure you factor that, as well as insurance costs, into your comfort payment!
Post # 12
I just saw your location in your profile. I live in the same city 🙂
So if you have area specific questions, feel free to PM me!
Post # 13
We got pre-approved well in advance of buying. The credit check isn’t a big deal as long as your credit is good and not just borderline for being in the A range of clients. It wasn’t much work to gather the info we needed for pre-approval. By doing it so early, we also realized some issues with our first broker, so we switched to a different mortgage broker.
Post # 14
LadyBear: If I may make a suggestion about PMI and not going to a bank…..I too was going to have to pay pmi. It was going to be over $300 a month with a bank. I ended up going with a private mortgage broker. I ended up paying half a point or so up front–it was about $2600 or so. So, in less than a year, I broke even. This greatly reduced my monthly payment and I didn’t have to worry about it anymore. Plus, the private mortgage broker offered signficantly better rates and closing costs than other banks (even military ones–better with no points than military credit unions could do with 2 point).
Another plug is that it was super easy–I closed in a couple of days. When I wanted to refinance, it took me two hours and I was signing papers in a couple of days (when I was hearing horror tories from my mom and friends of taking months).
It was explained to me that the reason they can offer low rates is because they only take low-risk clients (good credit). So, I’d recommend looking into it as an option because it can save you huge over time.
Post # 15
We got pre-approved before we even started looking, it’s really not a big deal and goes pretty quickly (provided you don’t have terrible credit).