When the number of buyers in the Boston real estate market outnumbers the number of Boston condos for sale, it’s called a “seller’s market.” The advantage tips toward the seller as low inventory heats up the competition among those searching for a Midtown condo to call their own. This can create multiple offer scenarios and bidding wars, making it tough for buyers to purchase their dream homes – unless they stand out from the crowd.
Here are some reasons why pre-approval is so important and should be your first step in the homebuying process.
Why is having a pre-approval letter so important?
Low Beacon Hill condo for sale inventory, like we have today, means homebuyers need every advantage they can get to make a strong impression and close the deal. One of the best ways to get one step ahead of other buyers is to get pre-approved for a mortgage before you make an offer. For one, it shows the sellers you’re serious about buying a Beacon Hill home, which is always a plus in your corner.
Pre-approval can also speed up the Boston real estate for sale buying process, so you can move faster when you’re ready to make an offer. In a competitive arena like we have today, being ready to put your best foot forward when the time comes maybe the leg-up you need to cross the finish line first and land the home of your dreams.
Here’s the other thing: if you’re pre-approved, you also have a better sense of your budget, what you can afford, and ultimately how much you’re eligible to borrow for your mortgage. This way, you’re less apt to fall in love with a home that may be out of your reach.
Freddie Mac sets out the advantages of pre-approval in the My Home section of their website:
“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”
Local Boston real estate brokers also have relationships with lenders who can help you through this process, so partnering with a trusted advisor will be key for that introduction. Once you select a lender, you’ll need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”
Freddie Mac also describes the ‘4 Cs’ that help determine the amount you’ll be qualified to borrow:
- Capacity: Your current and future ability to make your payments
- Capital or Cash Reserves: The money, savings, and investments you have that can be sold quickly for cash
- Collateral: The home, or type of home, that you would like to purchase
- Credit: Your history of paying bills and other debts on time
While there are still many additional steps you’ll need to take in the homebuying process, it’s clear why pre-approval is always the best place to begin. It’s your chance to gain the competitive edge you may need if you’re serious about owning a home.
What do I need for a home loan application?
If you’re intending to purchase a property in 2021, it’s important to note what documentation you’ll need to provide to the lender in order to get loan approval.
Many prospective buyers cringe at the thought of pulling together reams of receipts, paystubs, and W-2s. But if you start doing that now, you’ll be ready to go in the event you stumble upon that perfect condo in South Beach.
Here’s the list of documentation you will generally need in order to verify a home loan application:
1. Two most recent paystubs
2. W-2s for the last two years
3. Two most recent statements for all checking, savings, CD, money market, and/or securities brokerage accounts
4. Most recent statement for all retirement accounts (IRAs, SEP-IRAs, 401ks)
5. Most recent statement of stock options, employee stock option purchase plans, etc. if part of the down payment or closing costs of a purchase
6. 1040s (federal tax returns, all pages) for the last two years
7. Mortgage, real estate tax, and insurance premium statements for all properties currently owned
8. Leases on all rental properties you may own
9. Divorce decree and settlement statement, if applicable
10. Name, address, and phone number for your landlord covering the past 24 months
11. Twelve most recent canceled rent payment checks or bank statements if your landlord is a private party
12. Copy of your state-issued driver’s license or passport and your date of birth
13. Copy of current mortgage statements on all outstanding mortgages.
Getting started with pre-approval is a great way to begin the home-buying journey. Let’s get together today to make sure you’re on the fastest path to homeownership.