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The Importance of Budgeting and Pre-Approval

The first step in searching for a home can be overlooked in the excitement of home buying, especially for first time buyers. However, budgeting and getting a pre-approval from a qualified lender is imperative in setting yourself and your family up for success during the home search.

What can YOU afford? 

Your purchasing power will depend on your income, expenses, down payment, credit rating, and interest rates. Understanding what you can afford by diving into your current/expected income and expenses is a great place to start. Check out this article from Nerdwallet to learn how to appropriately set up a cohesive budget. It is important to stay within your comfort zone when budgeting what you can spend on your monthly mortgage payment. You may qualify for a loan that is larger than what your current financial choices allow.

Reviewing Your Down Payment Savings & Estimating Closing Costs

Alongside reviewing what you can afford as a monthly payment, it is important to review your savings. How much money can you put down on your loan? The larger your down payment is, the smaller your mortgage and your monthly payments will be. The traditional down payment amount is 20% of the purchase price, however, smaller down payment options are often available, including 100% financing. Closing Costs should also be considered on the front end of a purchase, as they are not wrapped into the purchase price of the home. A lender can provide you with more information.

Meeting With a Qualified Lender

Credit scores and interest rates are variable numbers that greatly affect your borrowing power. It is important to meet with a qualified lender to review your complete financial profile. A lender will be able to give you information about the best rates and terms in the current market as well as explain what options are tailored to your unique financial situation. When we begin to look seriously at homes, you may want to meet with more than one lender to compare costs, terms, and management style. To best prepare for meeting with a lender, plan to bring the collection of items listed below:

What to Bring to Your Lender

- W2 Forms (past 2 years)

- Bank Statements (past 3 months)

- IRA/Retirement Plan

- Existing debts like: student/auto loan, credit cards, child support

- Social Security Number

- Pay Stubs (last 3)

- Federal Tax Returns (past 2 years)

- Complete Record of Assets

- Monthly Expenses Sheet

- Written Explanation of any Employment Gaps

Are You Self Employed?

- Signed Federal Tax Returns (past 2 years)

- YTD Profit & Loss State

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