The search for your new home has begun. No matter how long or short your search may be, you will need financing once you find your dream home.
Pre-Qualifying: You can pre-qualify for a loan which will allow you to lock in your interest rate and know in advance exactly how much you can afford, this is the amount a lender is willing to let you borrow. Knowing this number will save you time as you are able to search for homes within your budget.
Pre-Approval: Getting pre-approved for a loan means that you have a tentative mortgage commitment from a lender. You have provided the lender with the necessary documents and information for them to approve a loan amount. This process requires a credit check as well as processing fees. You will be given documentation that states your loan amount which allows the seller to know that your financing is secured. However, the actual mortgage will not be granted until the property appraisal and title search come back clean and in proper order.
How much home you can afford can be determined by your down payment amount, your credit history and score as well as you debt to income ratio. A mortgage calculator is a great tool to help you work through the numbers.
Down Payment: Due to stricter federal requirements, most loans will require a down payment which is typically anywhere from 5% - 20% of the house price.
Closing Costs: These are loan processing fees that you are required to pay to acquire a mortgage. The full amount is due the day of closing and can be rolled into your mortgage. Closing costs can range between 2% - 5% of your loan.