Buying a Home? How to Stand Out in a Competitive Market
You’ve likely heard a few home-buying stories lately: bidding wars, multiple offers, missed opportunities. In many markets these days, there are more people shopping for a home than there are homes available.
Yet, with mortgage interest rates low, buying a home makes more financial sense than ever before. The percentage of income needed to afford the median rent today is 29.2 percent. By comparison, the percentage of income needed to afford a median home is just 15.8 percent.
So how can prospective home buyers land the house of their dreams, without enduring any purchasing nightmares? One simple step can help give you an advantage: Getting pre-approved for a mortgage.
Shopping for a home with a mortgage pre-approval in hand lets sellers know you’re serious about buying and that you have the financial ability to do so. It also speeds the selling process, allowing the home’s sellers to close the deal more quickly. If a house receives multiple offers, an offer from a pre-approved buyer will be significantly more attractive.
Mortgage pre-approval also helps buyers by letting you know exactly how much home you can afford. Getting approved before you start shopping allows you to search for homes within your budget, ensuring you won’t fall in love with anything you can’t afford.
To determine how much house you can afford, lenders consider four things:
- Capacity: Your current and future ability to make your payments
- Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
- Collateral: The home, or type of home, you would like to purchase
- Credit: Your history of paying bills and other debts on time
Home buyers can prepare for the pre-approval process by researching their current credit history and score in advance. While it’s a common misconception that you need an extremely high credit score to qualify, it helps to know where you stand, in order to avoid any surprises. Additionally, make sure to gather relevant documentation, like bank statements and tax returns, before applying for pre-approval.
Most importantly, seek out a lender you trust. Not all mortgages are created equal, so you’ll want to find a partner who can guide you through the lending and closing process with your best interests in mind. Look for lenders who have established relationships with real estate professionals in your community, and make sure your lender is willing to find the right loan—not just any loan—for your needs.
To learn more about the home buying process, please check out our free e-guide.