Step 1 of Home-Buying Process: Prepare, Budget, and Get Pre-approved by a Lender

1.1 Make sure buying a house is the right strategy

The first step to buying the home of your dreams is to first ask the right questions about why you are buying a house.  Do you plan on sticking around for several years?  Are you just buying a house because you think that is what you are supposed to do when you can afford one?  I have some great articles on buying vs renting that you can scroll through.

1.2 Find out what you can afford

Once you are sure that buying a house is the right strategy, you must look for a house that you can afford.  We don’t want you to stretch the wallet in order to make your payments.  You must look for an amount that you can maintain every month, while still being able to pay for unexpected maintenance and life fluctuations that come up.  Just google “afford monthly mortgage” and all sorts of sites with mortgage affordability calculators come up.

Just remember, it is your responsibility to budget correctly, not your bank’s.  Sometimes your bank will tell you how much you can “afford,” but only you can be sure about that.

1.3 Find out your credit score

Everyone is entitled to a free credit report at least once per year.  Just google “free credit report” and find a reputable company to get yours.  Mortgages usually require a good credit score nowadays.  A score of 720+ is deemed excellent, while a score of 620- is deemed as subprime by many lenders.  If you need to bump up your score before getting a loan, it could help you secure a better rate.

1.4 Get Pre-approved

This is one of the most important steps in the home buying process.  We almost made it a full step of its own.  Check out our article, why getting pre-approved is important to starting a house search.

In order to start this process, you must find a lender.  There are usually two types of lenders: local banks and mortgage brokers.  Our recommended first step is to try the bank that you deal with.  If you have established a good reputation with them, they will probably be more willing to work with you on getting a good pre-approved rate.  The advantage of a local bank is that they usually know the local market and can process everything in-house, which makes it a smooth process.

If you feel like your local bank is not a good choice for you, there are plenty of mortgage brokers out there who can help you out.  Basically, they assess your finances and then shop around financial institutions in order to find a loan that fits your needs.  The disadvantage to them is that they get a commission off of your mortgage, so they will sometimes shop around the institutions that give them a better commission to begin with.  If you are worried about this, just ask the broker about the various commission structures.

Also, make sure you are getting pre-approved, and not just pre-qualified.  The difference is that pre-qualification is just an estimate of what you can afford, but a pre-approval is a statement of fact.  Usually a bank puts a time period on their pre-approval, so make sure you are aware of when the pre-approval expires.

Photo Credit: “Number One” by John Ayo on Flickr.  CC Licensed.

About Matthew Loewen

I'm a real estate broker in Clovis, New Mexico. I started my own company, Loewen Clovis Realty, as a way to provide my services for those that need it in the area.

Outside of real estate, I am usually biking around Clovis, hanging out with friends, reading, or attending church functions.

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