What's in this article?
You’ve searched for your dream home hoping it’s within a reasonable price range that you can comfortably afford. Now it’s time to get serious about how you’ll finance your upcoming purchase by getting your first mortgage.
We explain the starting point to determine how much financing you can get, what you’ll need to do to secure that financing, and how to take the next steps toward buying your home.
Learn How Much Financing You Can Get for Your New Home
What Is the First Step in Getting a Mortgage?
To find out how much of a mortgage loan you can afford, you can get pre-approved* for a loan amount.
Pre-approval is used to start the financing process when you are still searching for the home you want to purchase. After you put an offer on a house and it is accepted, you will take the next steps to get a mortgage. Your lender will request updated information to create an agreement to finance that property.
If you already know how much financing you need, you can skip the pre-approval. Instead you’ll work directly with a lender who will help you fill out a mortgage application. This will determine the financing available to you.
In either case, speaking to a lender can help you understand your specific financial situation. They can guide you to the best possible option for financing your home.
*Pre-approval is based on a preliminary review of credit information provided to Homefinity which has not been reviewed by Underwriting. Final loan approval is subject to a full Underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.
How is a Pre-Approval Different from a Mortgage?
Pre-approval tells you the specific amount of money the lender is willing to loan you. And it’s a great negotiating tool for persuading home sellers if you’re shopping for a home.
A pre-approval letter is valid for a limited time, between 30-90 days. A lot can happen financially in a short amount of time, such as losing a job or gaining more income. If you haven’t found a house in that timeframe, you may need to get pre-approved for another loan.
A pre-approval letter gives you a competitive advantage over other home buyers. When multiple buyers bid on a house, the seller will usually pick an offer with financing pre-approved. This often makes the selling process faster, as they have proof of the necessary funds to purchase the house.
After your offer is accepted, you will need to start the official mortgage process. Before this point, you are not contractually obligated to work with the lender who gave you the pre-approval. This is why homebuyers sometimes use pre-approvals as a tool to shop for the best terms and rates.
Once you begin the official mortgage process, you’ll start with a lender who will help you fill out a loan application. This process then leads to a purchase agreement with your actual financing terms and amounts, as well as fees that you will pay to the lender for closing and funding the mortgage transaction.
After you apply for a mortgage, the lender will need to do a hard credit check, as well as request other documentation.
What is pre-qualification?
If you’re not quite ready for either of the above steps, you may want to get pre-qualified for a loan, which involves an estimation used by lenders to decide how much money you could probably afford to spend on a house.
Pre-qualification doesn’t involve a hard credit check and requires less information, but it also provides less specific details about your potential mortgage amount.
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What Do I Need to Get Started with My Mortgage?
Once you get serious about buying a house, you’ll need to submit information to a lender to gauge what you can afford. The following list of documentation* is not required for pre-approval but it can be helpful to have available upfront, as it will be needed after filling out a mortgage application:
Your monthly income
- Paystubs dating back 30 days
- W-2s for the past 2 years
- Federal tax returns for the past 2 years
Your monthly debt
- Credit card payments
- Car payments
- Student loan debt
- Other debts
Proof of Assets
- Checking accounts
- Savings accounts
- Retirement accounts and stocks
- Drivers license or passport
- Social Security card
*The above list is not required to apply but may be required later in the process.
Keep in mind that a lender will perform a hard credit inquiry when determining your pre-approval. This can affect your credit score, unlike a pre-qualification.
You will also need to figure out a reasonable down payment for your home. This amount will be factored into how much money you will receive for a mortgage. Consider other factors, such as your monthly income and expenses, as well as new expenses of owning a home. This could include property taxes, homeowners insurance, and maintenance costs.
Are you Ready to Take the Next Step to Buy a Home?
Now that you know the steps toward pre-approval and applying for a loan, you can gather your financial information and contact a loan officer to get started.Homefinity makes the home-buying process simple and friendly. Reach out to us to connect with a loan officer and take your initial step in getting your first mortgage.