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Line up financing before you shop -- Page 2

For example, high credit scores can qualify you for low down-payment loans or even no down-payment loans. If you are short on cash, you might find that lower down-payment requirements allow you up to buy more house than you thought you could. On the other hand, the lower the down payment, the higher the interest rate is likely to be. So once again, by securing financing first, you have a better idea of what your monthly payment will be before you start talking contracts with a seller.

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While increasing your knowledge about your buying power is good enough reason to secure financing before searching for a home, it may actually enhance your chances of getting the home you want.

In today's competitive housing market, there often are several buyers interested in the same home. Sellers are more likely to accept the bid of the person whose financing is all set over a buyer who still has to go through the process of securing a mortgage.

"In this aggressive market, sellers are looking for people who already have a lender committed to give them the funds," says Derek Ford, a real estate agent with Washington, D.C.-based Reynolds Real Estate Co. Since sellers often plan to use the money they make on the sale for a down payment on their next home, time is often critical when it comes to selecting a buyer from multiple bids.

Lender letters
Don't confuse securing a letter of commitment with getting pre-approved or being pre-qualified. You can pre-qualify for a loan by giving a lender some basic financial information, but the lender generally has not reviewed your information and will just give you an estimate of the amount for which you're likely to qualify.

A letter of pre-approval goes a step further. In that case, the lender has likely started verifying your information and credit, but there is still a chance that something could go wrong as the underwriting process continues.

A letter of commitment, on the other hand, is a document stating how much the lender is willing to loan, the terms of repayment for the loan and the length of time for which the letter is valid. When a buyer has a letter of commitment in hand, a seller can rest assured that the financial legwork has been done.

Even if there are not streams of buyers bidding on a property you want, someone who has already been pre-approved could come along during the time it takes for you to secure financing and sign a contract.

Securing financing first could also save you money. Ford says he has seen many instances in which sellers agreed to sell their properties for less than they had originally planned because they knew a potential buyer already had a commitment letter from a bank.

"The main things sellers look at are the price and the financing," Ford says. "As an agent, I'm not even taking someone out (to look at homes) before they have financing lined up."

The process of buying a home can be stressful just by the nature of being such a large purchase. By taking the time to ensure you have the financing you need first, you can eliminate some of that stress and make yourself a more appealing buyer in the process.

-- Updated: Sept. 6, 2005
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'05 Real Estate Guide
30 yr fixed mtg 3.60%
15 yr fixed mtg 2.77%
5/1 jumbo ARM 3.26%
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