Determining Your Budget

First things first—before you fall in love with that perfect home or neighborhood, it’s best to establish what’s within your budget. If there’s some flexibility available, you may want to see those perfect homes that stretch your finances a bit, but, if there’s no wiggle room, you’re best off not spending time on what you can’t afford. With a little work, we can still find you that perfect home while staying within your budget, even if it means making a few minor upgrades after the purchase.

Unless you’re buying with cash, then a big part of establishing your budget depends upon how much you’re willing and able to borrow in the form of a home mortgage. You don’t have to decide on a lender now, but you’ll want to arrange a meeting with one as soon as possible in order to obtain a prequalification or preapproval letter, which informs both you and a seller of how much the bank feels you may borrow. This process also will inform you of such things as currently available interest rates, required down payments and approximate payment amounts. In the process, you’ll obtain a letter that we can keep on file and submit with any offers. Purchase offers don’t have to be accompanied by a prequalification or preapproval letter, but, when provided, those documents can enhance the attractiveness of your offer by assuring sellers that you have the ability to follow through on a purchase.

Show them that you’re serious: Get preapproved

At the very least, you’ll want to secure a prequalification letter, which indicates that based on some very basic information, you should be able to obtain a mortgage, but I highly recommend taking things a step farther by filing full application for a mortgage and obtaining preapproval. Once you’re preapproved, all shades of doubt have been removed regarding your ability to follow through on a purchase. In other words, with a preapproval letter in hand, sellers have no reason to doubt the authenticity of your offer. Should multiple offers be submitted (which does happen), with preapproval, sellers may choose your offer over those that come with just prequalification, or, worse yet, no financial qualifiers at all. Sellers mean business and they want buyers who indicate that they’re serious about buying a home. One way to do that is by getting preapproved for a mortgage.

Find out how much you’ll net from your existing home

If you currently own a home that you’ll need to sell (unless there’s room in the budget for making it a rental property), then, chances are, the proceeds from that home make up a large part of of what you’ll be spending. If so, we’ll need to determine exactly what that home is worth, so you’ll know approximately how much you’ll have to work with for down payments and other purposes.

Preapproval and prequalification letters

Preapproval and prequalification letters serve the same purpose: they inform sellers that you’ve already met with a lender and based on preliminary information, the lender feels that you have the ability to make a down payment, secure a mortgage and follow through on the purchase of a home (so long as the offering amount is within your borrowing limits). If you’re wondering what the differences are between these two letters, it’s simple. Prequalification means you’ve provided sufficient evidence to a lender for them to believe that you’re capable of securing a loan. But with prequalification, you aren’t actually applying for a loan, so the bank does not obtain knowledge of your credit history. In other words, there’s still no guarantee to sellers that, once that happens, you’ll qualify.

Preapproval differs from prequalification, in that you aren’t providing only basic information for a quick prequalification, but you’re actually filing a full mortgage application. This allows a lender to determine that—based on your current financial situation, history and credit—whether or not you definitely qualify to receive a mortgage and complete the purchase of a home. So long as your finances remain the same between the time that you get preapproved and the time you make a purchase, you’re in the clear. Miss a few payments, or purchase a new car in the meantime and, well, that’s a different story. But you won’t do that.

Neither prequalification nor preapproval requires a commitment or any written agreement from you to the bank.

NOTE: It’s best not to obtain preapproval until you’re certain that you’re ready to pursue the purchase of your new home. Why? Many of the checks that a lender will make in order to preapprove you have set expiration periods, like credit reports, for instance. After a set period of time, lenders will need to re-check those factors in order to approve you for a loan. This period is often around 90 days.

Each lender will have its own requirements, but here’s an idea for the basics of what you should expect lenders to ask for in order to provide prequalification or preapproval:


  • Social Security number and date of birth
  • Complete contact information
  • Employer information, including names, addresses and telephone numbers of employers for the past two years
  • Approximate current assets (value of any retirement accounts, CDs, stocks, bonds, life insurance, and others)
  • Liabilities – auto loans, student loans, credit cards and other installment debt
  • Current and previous addresses

Preapproval (in addition to many of the items listed above)

  • Thirty days of pay stubs
  • Two years of federal tax returns
  • Sixty days or a quarterly statement of all asset accounts including your checking, savings and any investment accounts
  • Two years of W2s


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