The Buying Series Part 8 – Pre-approvals and deposits

Shopping for a home is exciting and fun, but serious homebuyers need to start the process in a lender’s office, not at an open house. While it may seem tempting to start browsing listings and attending open houses right away, taking the time to get pre-approved for a mortgage will make the home-buying process smoother and more efficient.

A pre-approval not only sets your budget, but it also ensures that you are ready to make an offer when you find the home you love. However, it’s important to note that pre-approvals don’t last forever and they do not guarantee financing. It’s essential to be aware of when your approval expires so that you can extend it if necessary or speed up the process if rates have gone up.

As you begin to look for homes, there are a few things to consider to make sure that you don’t jeopardize your financing. First, avoid making any big purchases, such as taking out a car loan or applying for a line of credit, as it will affect your buying power. Additionally, when making an offer on a home, be sure not to write an unreasonable offer as the final approval will be based on an appraisal of the home, and the lender wants to ensure they’re not lending you more than the home is worth.

If you buy a home that needs renovations, basement development, or a garage addition, you can ask your lender to mortgage these improvements. Be sure to talk to your lender about the fine print and how quickly these items would need to be completed.

When setting your budget, be careful to assess your comfort level with a given house payment rather than immediately aiming for the top of your spending limit. It’s important to be realistic about what you can afford to avoid financial strain down the line.

When writing an offer on a home, you’ll need to pay a deposit, which is typically negotiable but often around 5% of the purchase price. It’s essential to have cash available for the deposit, and if you need to pull from investments or access the money in another way, do so in advance to ensure you can pay the deposit when it’s due.

It’s important to note that you cannot borrow the money for the deposit or down payment, but it can be gifted to you. However, you may require a letter or proof that it is a gift and not a loan. The deposit shows the seller that you are serious about the home and helps demonstrate that you can afford it. The deposit is paid to and held by the seller’s brokerage, and on a conditional offer, the deposit is refundable until the conditions are waived. Once the conditions are waived, the deposit is applied to your down payment.

In summary, while shopping for a home may be exciting, it’s crucial to start the process in a lender’s office, not at an open house. Getting pre-approved for a mortgage and taking the time to understand the details of the home-buying process will ensure that you can make a wise financial decision and find a home you love. If you have any questions or want to speak to a mortgage expert, reach out for a recommendation.