What is the Difference Between Pre-Qualified & Pre-Approval? Market Update for Santa Clarita Real Estate
Before you start looking for homes for sale in Santa Clarita, you should first speak with a lender to get pre-approved. Most sellers wont even look at an offer on their home without this pre-approval letter.
- Lender has ran your credit
- Verified your income
- Approved you for a home worth $ XXX,XXX
- Lender got your information verbally
- Asked you your income
- Tells you you may approve for a home worth about $ XXX,XXX
You can see the difference from above is a pre-approval holds more weight. Pre-qualified letters aren’t accepted by many sellers any longer because it isn’t set in stone or verified, and you may not even qualify for the home you are writing an offer on. With a pre-approval letter you are as good as a cash buyer in the seller’s eyes.
Keep in mind you can not lock in interest rates until you have found the home you want to write an offer on.
How Much Can I Afford?
There are a few major factors to consider when thinking about purchasing a home
- What will be the down payment on the house? (3.5%, 5%, 10% or 20%, there are a variety of options and benefits to each)
- Ability to qualify for the mortgage ( Debt to Income ratio, or DTI – Do you have alot of other debt versus your income)
- Closing costs of your purchase ( figure about 3% of purchase price on average, we can ask for closing covered, but not always agreed upon)
Most loans today will require anywhere from 3.5% on FHA loans all the way up to 20% for some conventional programs. There are 5% conventional loans and other options in between. Depending on what program you go with depends on what interest rate you receive. Most FHA programs will require a mortgage insurance on top of it which is an additional monthly fee. Here in Santa Clarita many of our condo/townhome for sale do not accept FHA loans any longer due to certain requirements the communities no longer meet. For information on the FHA list email me ZachMc@kw.com
There are fees associated with purchasing a home. These “closing costs” cover loan processing and escrow fees. The fees need to be paid in full at the time of final settlement, unless they are included in financing. Typically this will run 2-5% of the loan, but it’s safe to figure 3%.
Qualifying for the Mortgage
You want to think about how much you want to pay a month for a home. Keep in mind you will only be able to qualify up to a certain amount. Lenders are different but its safe to assume 40% or so of gross income allotted for mortgage payment. And this will include PITI
- Loan Principal (P)
- Loan Interest (I)
- Property Taxes (T)
- Homeowners Insurance (I)
We suggest speaking with a few different lenders to find the one you click with. This is someone you need to feel completely comfortable with so they can give you a very clear picture of your financial situation. We have a few lenders we have relationships with in Santa Clarita and would be more than happy to refer you to them so you can begin your home search.
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