Tuesday, May 29, 2012

Financing Process for Buying a Home


Before you can begin to search for a new home you need to determine your budget and estimate how much you can afford.  Consider all costs involved,including taxes, homeowners insurance, private mortgage insurance (PMI) and utilities.  One of the most important factors in figuring out you financial is getting pre-approved for a Mortgage.


The first step towards financing a new home is getting pre-approved for a mortgage.  A mortgage is an advance of money from your lender that will cover the finances of your new property.  Over an extended period of time, you (the mortgagee) must pay the bank back each month percentage of the money they lent you plus interest, until the total sum is paid in full.  This is how most homes are financed.


When you apply for a mortgage, you will need to furnish information regarding your income, expenses and obligations.  Check your credit report to make sure there are no errors.  To save time, have the following items available for each borrower:
  • Two of most recent pay stubs.
  • W-2s for the last two years.
  • Federal tax returns for the last two years.
  • Last two months' bank statements.
  • Long-term debt information. (credit cards, child support, auto loans, installment debt, etc.)

Of course, a lender will only lend you money if they're sure you credit is strong and they're confident you have the ability to pay them back.  A bank checks your credit by studying your financial history, income, federal tax returns, pay stubs, and long term debt information to determine if you are a good candidate for a loan.  If your credit report is good, then you have an excellent chance of obtaining a mortgage.  If not, then you must take the appropriate steps to improve your credit rating.

Now that you've examined your credit report and are confident that you're in goo shape, you're ready to choose between getting pre-approved for a mortgage or pre-qualified for a mortgage.

Pre-approval uses basic information as well as electronic credit reporting to determine whether a lender will loan you money.  If you are pre-approved for a mortgage, the lender has given you a commitment to support your new purchase.  People who are pre-approved for a mortgage are more attractive candidates to the seller and have a better chance of getting the property when they make an offer.

Pre-qualification is not a mortgage approval but simply an estimate of what you can afford.  When you pre-qualify for a mortgage, the lender also collects basic information regarding your income, monthly debts, credit history and assets, and then uses this information to calculate an estimated mortgage amount.  The lender has not yet committed to supporting your financial needs and, there, you have not received an actual guarantee of funds.

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