Are
You Pre-Approved for a Mortgage?
The differences between pre-qualification,
pre-approval
and loan commitment
If
you are just getting started in the hunt for a new home,
It is important to know the difference between pre-qualifying,
having pre-approval and making a loan commitment. It is not
enough to simply begin looking for the home of your dreams.
It is critical that you determine the price range that you can
afford, get qualified for a loan and understand all of the steps
to assist you in securing that perfect property when you find
it.
Pre-Qualification
Pre-qualification
does not mean that you have been approved
for a loan, but it is an important component of the home buying
process.
You
have to know what you can afford before you look.
Pre-qualification will save you time and ultimately money.
A
good real estate agent or mortgage professional can help
you determine your qualification. You should candidly discuss
your financial situation with him or her and not withhold any
information. Most likely your agent will want to know your yearly
household income as well as your assets and liabilities. If
you
can discuss your finances candidly and determine what you
sort of properties on which you can reasonably qualify for a
loan,
then no one's time will be wasted. Otherwise, your agent may
end up being a tour guide, showing you beautiful houses that
you will never be able to get a mortgage for rather than helping
you find an appropriate property to make an offer on. However,
pre-qualification doesn't mean that much to sellers. It is more
of
a tool to help potential buyers figure out their price range.
Pre-Approval
Pre-approval
is a firmer commitment that is based on more
information than pre-qualification. A mortgage broker or lender
will need to do a thorough credit investigation and it is
particularly important that you disclose all financial information
that is requested. The amount that you are approved for will
be
the amount that the lender is committed to loan for the purchase
of a house. Getting pre-approval may give you more bargaining
power when you are negotiating the price of a home.
If
the seller knows that you are approved for the loan already
you may have more leverage. In fact, it is a good idea to plan
on
getting pre-approved. Some real estate agents won't waste their
times showing home to potential buyers who do not have pre-
approval especially in a hot market. However, pre-approval
doesn't necessarily mean that you will ultimately get the loan.
The final approval will still depend on a last check of your
income
and credit report before closing and also approval of the home
you wish to purchase.
Loan
Commitment
A
loan commitment is a letter that is issued by the lender that
states that they will fund your mortgage. This letter may include
details of your interest rate and the maximum amount of loan
they will offer. This sort of commitment requires that both
you
and the house be approved. This means that the home will
need to be appraised at the sale price or higher and must
meet the lender's guidelines.
Regardless
of what stage of home buying you are in, it is very
important that you keep a few things in mind. Remember that
just because you are approved for a large loan, does not
necessarily mean that you should borrow at the upper limit of
your loan approval. Homeownership involves more expenses
than renting and some properties need more work than others.
Make
sure you leave a financial cushion for repairs and
upgrades to your new home.
Once
you get approved don't make any big changes to your
finances. Changing jobs, banks and taking out other loans can
lower your credit rating, change your debt-to-income ratio and
ultimately keep you from getting the loan. Now is not the time
to buy that new car, big screen television or to take an expensive
vacation. The mortgage company may make one last credit check
even if you have pre-approval. If you are educated and prepared
though, you may find that the home buying process is easy and
stress free.
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to Mortgage Plans Available
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