As in many markets across the country, the number of buyers searching for new homes here in the DC Metro area is greater than the number of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show sellers that you are serious about buying is to get pre-qualified or pre-approved for a mortgage before starting your search. It also can speed up the process once your offer has been accepted.
In addition, knowing your budget will give you the confidence of knowing if your dream home is within your reach—important to know even when the market is less competitive.
The ‘My Home’ section on the Freddie Mac web site explains the advantages of pre-approval:
“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”
One of the many advantages of working with local real estate professionals like us is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”
Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:
- 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, that you would like to purchase
- Credit: Your history of paying bills and other debts on time
What about the Down Payment and Credit Scores?
Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. And for first time homebuyers, lenders (and many states) offer special programs that can sometimes greatly reduce or even eliminate the the down payment. By talking to a lender first, you may be pleasantly surprised at your ability to qualify as well.