How Far In Advance Should A Home Buyer Apply For A Mortgage?

17 October 2017
 Categories: Real Estate, Blog

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Prospective home buyers usually begin their search to buy a house by browsing through various real estate listings. By doing so, the potential buyer gains a useful overview of what types of houses are available. Casual browsing also provides information about the price range of homes for sale. To become a serious buyer, however, an individual needs to have a preliminary plan developed on how to finance a home.

Unless you are prepared to pay cash for a home purchase, you will probably have to obtain a mortgage loan. Until you know how much you can borrow, you don't really have a clear notion of the maximum price you can pay. Before making a purchase offer, a home buyer should obtain some degree of commitment from a mortgage lender.

Mortgage pre-qualification

Many mortgage lenders can provide a written statement confirming their tentative commitment to funding a home purchase. The tentative agreement places you in a pre-qualified status. A formal mortgage application is usually not needed to become pre-qualified for a loan. An important benefit of mortgage pre-qualification is that you can focus your search on homes within a certain price range.

Mortgage pre-approval

Mortgage pre-approval is a much more solid commitment. Once you are pre-approved for a mortgage, there is generally no need to include a clause in your offer making a sale contingent on financing. In addition to the loan application itself, mortgage pre-approval is likely to entail the review of several other documents.

Copies of tax returns

Make sure that you have copies of your most recent income tax returns. If you are unable to locate your tax returns, there is a way of obtaining copies. If you relied on the services of a paid tax preparer, the preparer's firm is required to keep copies for several years. Some tax firms may charge a nominal fee for a copy of a tax return.

If your tax return was not prepared by a paid preparer, the IRS can provide a copy of tax returns from prior years. The IRS also provides free tax transcripts for prior years, but a mortgage company may require copies of actual tax forms. The IRS assesses a charge for copies of tax returns.

Credit reports

Mortgage lenders base their decisions partially on the information in credit reports. Before applying for a mortgage, check the accuracy of your credit reports with the major credit bureaus. You are entitled to receive one free credit report from each bureau every 12 months.

By being pre-approved for a mortgage, you are ready to make a purchase offer as soon as the right opportunity comes along. Contact a real estate company for more information about financing the purchase of a home.