How to Get Pre-Approved on Your Home Loan
In order to get pre-approved, you’ll need to contact a lender. The lender will review your credit reports, your employment history, and your income — and then determine which loan programs you qualify for, the maximum amount you can borrow, and the interest rates you will be offered. Obtaining pre-approval means that the lender is confident in your ability to pay off a loan.
Information to Provide for the Pre-Approval
This process is a simplified version of what you will ultimately go through to get approved for your final loan. Lenders are generally interested in your financial history for the last two years: two years of pay stubs, taxes, and residency. Information on your current assets and bank statements from any savings or investments are required as well. Also, a valid photo ID (Driver’s License, Passport,) and social security number for a credit check.
What to Do With Your Pre-Approval
In many cases, the lender that gives you your pre-approval is the one that approves the final loan, but not always. Some borrowers, learning more about the process, decide to go with another lender. You should feel free, before the loan is locked in, to consider competing offers.
The pre-approval gives the home buyer an idea of what their monthly payments, down payments, and terms will look like. The pre-approval is not just what you think you can afford, but what you can actually afford. A pre-approval letter is a great way to show agents and sellers that you have the resources and are serious about buying a home.
How to Get Pre-Approved by a Lender
It’s all in the paperwork & preparation
Obtaining a mortgage requires an extensive accounting of your personal and financial life. The mortgage application can appear to be a daunting prospect, but a little organization in your files and paperwork can go a long way. Go over this list of information and documentation required to apply for a loan, and get a jump on your application.
Information for the Federally Required Mortgage Application
- Full Name, Birth Date, Social Security #, Phone Number
- Number of children, their ages, marital status
- Residence history for the last two years; for renters, this includes landlord’s name and monthly rent. For homeowners, all mortgage, tax and insurance info for all properties owned.
- Two years of employment history: companies, addresses, titles held, contact
- Two years of income: includes bonuses, commissions, and self-employment
- Account Balances for all banking: checking, savings, retirement, investments
- Current fixed debt: credit cards, mortgage, car payments, alimony, child support, student debt
- Documentation of bankruptcy (in the last seven years), lawsuits, or a co-signer on any property
- If a percent of the down payment will be borrowed
Documentation Required to Obtain the Loan
- Written authorization for the lender to run a credit report
- Written explanations for anything derogatory in the credit report
- Discharge papers from Bankruptcy (if in the last seven years)
- For renters, 12 months of canceled rent checks from landlord, or a form confirming on-time rent payments
- If renting to others, applicable lease agreements and bank statements
- If selling while buying, confirmation of the listing agreement
- 30 days of pay stubs
- Two years of W2 forms
- Two years of personal federal tax returns
- For the self-employed, two years of business tax returns
- For the self-employed, year-to-date profit and loss statement
- Documentation of child support and alimony payments, and divorce decree
- Two months of bank statements from checking, saving, retirement, and investment accounts
- If you are receiving gift funds, a statement from the giver confirming the gift is a gift and not a loan
How Your Credit Score Could Affect Your Ability to Obtain a Loan
If you know your credit score, this general breakdown will give you an idea of what you could be working with.
720+ Excellent Credit: Should easily qualify for a variety of mortgages, obtain good interest rates and low fees.
680 – 719 Good Credit: Most likely able to qualify, with a decent interest rate and standard fees.
620 – 679 Fair Credit: A chance to qualify, with fewer options, higher interest rates and fees.
580 – 619 Poor Credit: Difficult to qualify, with much fewer options, higher interest rates and fees.
350 – 579 Bad Credit: Unlikely to qualify for a mortgage, with some exceptions.
Mortgage Blog Articles
How to Find a Lender
Using Homes.com professional search functionality you can find lenders across the US. Information for local mortgage professionals can also be found on each of our property detail pages, as well as through the recommendations of your real estate agent or brokerage.
Are There Any Homes That Don’t Require A Mortgage?
Not all home purchases require a mortgage, but for most buyers a mortage is the easiest and most logical option for affording a home.
Open Houses & Agent-Accompanied Tours
Basics That Every Home Buyer Needs to Know
By this point in the homebuying process, you’ve found a realtor you can trust, have been pre-approved for a mortgage, and understand how much house you can afford. It’s time to get off the Internet and do a physical walk-through of a few likely home candidates.
How Do I Prepare/What Do I Bring to the Walk-Through?
Most pre-approval offers expire in 60-120 days, so from the time of your pre-approval, the clock is ticking. When it comes to house hunting, saving time is not wasting time. Be thorough, but be organized. There is no overall average on how much time you should spend on a walk-through, but whatever you spend, don’t rush it. Remember – you cannot view 10 properties in an hour; it’s just not a realistic goal. Make sure you plan out a driving route on house hunting day so that you can view all the properties in the same area with efficiency, saving time and energy in the process.
Savvy homebuyers will bring a moisture meter with them to the walk-through. Moisture meters are good for pointing out leaks and other moisture problems and can preempt problems with mold. If you see spots of softer wood or stains on the ceilings or wall, use the moister meter. A good read should be around 16%, but under 28%, the home is still fixable.
Besides the moisture meter, you should bring a checklist for what to look out for in a home; Homes.com has designed just such a checklist for you to download here.
What to Do Before Making Your Offer
You’ve reached the point in the home buying process where you’ve found a home that you want to put an offer on. So now what goes into making that offer, and what sort of homework should you do before making it?
Look up information on homes that have been recently sold in the area, and ones that are most similar to the one you’re thinking of putting an offer on. Size, age, number of bedrooms, number of baths, and overall condition are all good measurements to start with. The homes that share these similar features are referred to as Comparables (often called “Comps”), and they will give you an idea of what people are willing to pay for in your market. This will help you craft an offer that stands out to the seller.
Your agent is your second pair of eyes in the home hunting process, but that shouldn’t stop you from getting a third or fourth opinion. If you have a friend or family member who has experience in home buying, or who works in home construction or home renovation, ask them along for a second walk-through.
More than just visualizing yourself in the neighborhood, spend a little time there. What neighbors may be like during the day can alter drastically how they are during the night. Take a couple of walks around the block, or go on a few mock errands. Take a dry run of your commute as well; for some, that daily trip could be reason enough not to buy.
Take another look at your finances, and think beyond just the interest rates. At this point, you should be factoring in closing costs, property taxes, and maintenance on the home. A home that requires some repair at closing might get you a lower purchase price, but homes don’t get younger. Keep in mind that older homes will only require more repair down the road. Make sure you are up to date on all your finances and credit and are ready to apply for that final loan.
The offer that you make on that home really does require a lot of thought, and should. Think back to the list of your top priorities that you made before this began. Does this home still fit within them? Think about what you decided you could compromise on, how much you can afford, and what you might have to give up or compromise on. Take into consideration everything you’ve seen on this home buying journey, everything you’ve learned, and put that all information carefully into your offer.
Making an Offer
Now that you’ve zeroed in on the home you want to buy, it’s time to make that all-important offer. In homebuying, the offer is much more than a verbal ask, or a number written down on a piece of paper. There are a number of details that go into the offer, including timelines, contingencies, and earnest money, which should be fine-tuned to appeal to the seller while still getting you the best price for the home. You’ll spend time fine-tuning your offer with your agent (points noted below), who will represent you in the final negotiation.
Before Making an Offer
In considering what to include in your offer, make sure to take in neighborhood comparables – that is, homes of the same basic age and size, with the same comparable features. If there are comparables that have sold recently in your area, these homes will serve as a baseline for your offer. Your agent will be helpful in pulling up comparables for your home, and should already have this information for you at this point in the process. Agents will have at their disposal Comparable Market Analysis (CMA) that will make this part of the process much easier.
Besides just the current market sales of comparable homes, consider how long the home you’re looking at has been on the market if the price has been reduced over time and the general condition of the neighborhood. All of these things will end up being important points in defining your offer, as well as in the buying negotiations.
What Information Does the Offer Include?
- Sale price
- Address and description of the property
- Terms—that is: an all-cash transaction, or obtaining a mortgage for a pre-arraigned amount
- The time limit on the offer
- Seller’s promise to provide clear title
- Target date for closing, that is: the date of the sale
- Type of deed that will be granted
- State and local specific details
- Earnest Money – this is a deposit that buyers offer the seller to show that they are serious about the sale. If accepted, the earnest money will go towards the down payment or the closing costs.
- Agreement by which any and all utilities, real estate taxes, rent, or fuel is paid for/split between buyer and seller
- Agreement by which title insurance, survey, termite inspection is paid for/split between buyer and seller
- Agreement about any last-minute inspection of the property
- Contingencies – these are actions or benchmarks that the offer is contingent upon. That means a statement within the offer that reads, “This offer is contingent upon [blank].” Common contingencies include details of satisfactory financing obtained by the buyer, the time frame in which the home must be inspected, and the date of possession, among others.
Presenting the Offer
Work with your agent or real estate attorney to put all this information in writing in a way that will connect with your seller, and help you get the desired outcome… an acceptance of your offer!
Unfortunately, that may not be the only outcome! Instead of a simple “yes”, the seller could outright reject your offer and (possible) a negotiation process could begin. Or the seller could agree and you have a contract (our preferred outcome too!)
No matter what happens next, having a good agent or attorney review the details of all legal communications and contracts is critical.
Homebuying and Sale Price: What’s Negotiable?
In every homebuying contract, there are several components on the negotiation table: home repairs, real estate taxes, HOA fees, etc. But when it comes to the overall sale price, how far south are buyers able to drive the sale? Is there a rule of thumb when it comes to lowering the price? And at what point does the seller simply walk away? Here are some helpful things to keep in mind when negotiating sale price.
Home Value > Listing Price
Another one of the valuable abilities your agent brings to the table is a clear picture of what the home’s true market value is. If the listing price is above that, then you may have some wiggle room. Unless you are considering a “stale” home that has spent some time on the market, you’ll be hard-pressed to find anyone dipping below the home’s value. If the home you are looking at is already at market value, don’t wait – lock that one down.
Depends on the Market
Again, your agent is an invaluable resource on this one. They will know if homes are selling for 3% below the asking price or 13%. Depending on the market, a seller could see an offer at 5% below as a slap in the face, while in other markets, an offer at 15% below is common. Ask your agent if this is a house to negotiate on, and how far you should go. Negotiating the home price within 90% of the asking price is not uncommon; 25% below the asking price is rare.
The Inspection May Not Change Anything
A home inspection is a natural place for homebuyers to change their offer: if the inspection turns up problems that are serious enough, the responsibility of repair can find its way to the negotiation table, or the homebuyers may want to walk away altogether. But often the inspection turns up nothing, or the seller doesn’t find that the inspector’s report warrants any renovation before the sale. The home inspection is a deeply important part of the homebuying process, but not the point upon which you want the entire sale price to hinge.
The only way to not compromise in the home buying process is to not buy a home. Whether it be the sale price, the terms, repairs, possession: if you want the home, on one of these things you will ultimately have to compromise. Before going to the negotiating table with the seller, know where your own wiggle points are, and get ready to compromise in order to get what you really want.
What to Do When Your Offer is Rejected
The homebuying process can be a deeply emotional one, and one of the most emotional moments is the moment when your offer gets rejected. Many homebuyers, first time or otherwise, are thrown for a loop when their offer is rejected. The most important thing to do when this happens is not to panic, and to instead consider the following:
Some Seller’s Agents Tell Their Clients to Reject All First Offers
For good or ill, this is a common tactic. In particular, if you are buying in a seller’s market, be prepared for your first offer to be rejected out of hand. Many homebuyers do this because they want to see who is truly interested in their home, and who is willing to work to get it. Be careful though, thinking too much about the motivations of the seller can be a trap, which leads to the next point.
Consider, But Don’t Overanalyze the Seller
It’s always an advantage for the home buyer to know a few things about the seller. Things about why they are selling, and what they plan to do next can offer insight into their motivations. But don’t get caught up in analyzing the seller too much; doing so can waste precious time. Sometimes their only motivation is just that they think that they can get a better price.
Make Another Offer
You can always make another offer. Make the second offer as soon as you can, while getting advice from your agent and your family. If you started with a particularly low offer, perhaps your agent had this second offer waiting in the background. Others choose at this point to do away with negotiation tactics (which is a tactic to itself) and to simply let the seller know exactly the maximum they can afford on the property. If a seller doesn’t respond to your best possible offer, you know to move on.
Don’t wait too long to move on. If the seller isn’t responding to anything you’ve offered, then put this particular home behind you. The time you waste now, anguishing over the offer from/to this seller, could be time better used to put an offer in on another home. The homebuying process is emotional, and it can be easy to fall into the trap of thinking that this home is “the one.” That kind of thinking can potentially slow down the homebuying process, and in fact, keep you from the true home of your dreams.
What to Look For, and How it Impacts Your Offer
Conducting a private home inspection is almost always a necessary step in the home buying process. Home inspectors are in demand in many areas of the country, so it’s important to get their inspection scheduled as soon as you know the time window described in the contract with the seller. Research home inspectors in your area for positive reviews and ask friends for recommendations, your agent will also have suggestions of good inspectors in the area.
When you speak to the inspector, make sure you know exactly what they are covering. Will they check for asbestos? Will they test for lead paint? There are often state and local ordinances that the inspector will be aware of. Like with all the professionals you will hire, do not be afraid to ask questions. One thing most home inspectors don’t do is Pest Inspection, so if the inspector sees some signs of termites or other pests, you may have to hire a pest specialist.
On the day of the inspection, be there with the inspector. Most likely, the seller’s agent will be there as well to answer some of the inspector’s questions, and these are answers you’ll want to hear. At any part of the home inspection where you can reasonably follow the inspector around the home, do so. A good inspector will give you tips and advice on how to take care of this particular home as it ages. More than just the pros and cons of purchase, think of this information as the “driver’s manual” of the home.
What to Look for in the Home Inspection Report
The bullets below are the primary areas to an inspector’s report should cover. The report may contain more than this, and the inspector will let you know what they feel is most important. If the report does not include the status of the elements listed below, it’s your job to ask why and, if necessary, to hire another inspector for another opinion.
- Foundation: Cracks or shifts in the foundation; if the walls where they meet the floors/ceilings are level
- Roof: General age/condition
- Exterior/Lot: Does the drainage flow away from the house; are there “soggy” parts of the yard. When was the last time the house was painted? Is the gutter system working?
- Attic: Interior condition of the roof, leaks
- Room Leaks: Areas around windows, or below windows on lower floors.
- Basement: Moisture levels, insulation
- Electrical: Grounding, Circuit breakers, Switches. If there has been any “DIY” work.
- Plumbing: Condition of the sewer line. Any drips, noises, or leaks.
- Appliances: If applicable, the age and condition of the refrigerator, oven, dishwasher
- Heating/Cooling System: Age and condition of the furnace and/or central air
How the Inspection Might Impact Your Offer
A good home inspector should be impartial to the sale of the house, so they are mandated to tell you all about the condition of the house, not whether it should affect the home’s price. In many cases, the inspection does not change the offer between the buyer and seller at all, and simply gives the buyer a heads-up on things to look for in the home’s future. In the case that the home inspector’s report does flag something worth negotiating, the buyer has three options:
- Negotiate lower offer
- Request certain repairs
- Rescind offer
When it comes to requesting repairs, a buyer can ask for something as simple as a new screen on a window, or something as big as a new roof. When trying to decide between the three options above, consider the following: Did the seller already reflect the home’s damage by listing the home at lower-than-market value? What is the cost of the fix compared to the overall cost of the house? Depending on the house, sewer problems might be a fraction of the home’s costs, or it might be as much as the home itself. How much do you trust the seller to do the repair in the best way possible? If you think the seller might cut corners to close faster, you might want to negotiate a lower offer, rather than request repairs.