Get preapproved, not just prequalified
Once you've determined how much house you can afford,
why not take the next step and get pre-qualified and pre-approved
for a home mortgage loan?
Not only will you know your housing budget to the
dollar before you start looking for a home, you'll also have more
negotiating leverage because the seller knows you've already got
a loan virtually in your pocket.
Pre-qualification acts as a dry run of the loan application process.
The mortgage lender will use details you provide about your credit,
income, assets and debts to arrive at an estimate of how much mortgage
you can afford. The whole process may take only minutes or a few
hours at most, and is usually free.
While a "pre-qual" is non-binding
to the lender (because the information you provide has not been
verified), it does serve as a good indication to potential sellers
of your general creditworthiness.
Pre-approval takes pre-qualification one step
further. The lender will contact your employer, your bank and others
to verify your income, assets, debts and credit history, and then
issue you a letter stating that your mortgage is approved for a
certain amount within a certain timeframe. You may be charged a
small fee to cover the cost of your credit reports and your application,
often refunded at closing.
Gain the buying edge
The advantages of pre-qualification and pre-approval are two-fold:
you're more attractive to sellers, who needn't worry that they'll
accept your offer only to have your loan turned down, and you'll
save time to closing when you find a home because the lender will
have already completed the necessary qualifying and underwriting
Important note: Should your financial circumstances
change before closing, make sure to contact your lender, as your
pre-qualification or pre-approval status may no longer be valid.