One of the first steps in the home buying process should be to meet with a trusted lender to find out how much home you can afford. Here are the basics about being pre-qualified and pre-approved.
Pre-qualified – This can usually be done at no cost to you. You will meet with the lender and provide basic information about your debt and assets. The lender can then give you and idea of what price range you can afford. Note that this is not a for sure thing. You still need to go through the approval process for it to be official.
An advantage of getting pre-qualified is that you have a good idea of what price range you should be looking in so you don’t waste your time looking at properties that are more expensive than your current situation can handle.
Pre-Approved – In this step you actually fill out a mortgage application and provide all the necessary documentation (tax returns, pay stubs, 401k statement, etc.) to support your financial situation and give the lender authorization to run your credit. Once they have all this information, they can give you a firm amount of what you have actually been approved for. Some lenders charge a fee for this, some don’t.
Being pre-approved is key once you are serious about searching for and putting an offer on a home. Providing a pre-approval letter with your offer shows that you are serious and have already secured financing for your purchase and may be the difference between your offer being accepted over another.
The bank still has to approve the house you are trying to purchase before the loan can be finalized. That is why they send out an appraiser to make sure the home is worth what you are offering. They typically will run your credit again toward the end of your closing period to make sure nothing has changed. So no big splurges when you are in the middle of financing a home. Just don’t do it!
There are several mortgage brokers that I have worked with and would be happy to recommend whenever you are ready.