Once you've decided to buy a property, the first step is not to go
house hunting. Instead, you should find out what you can borrow. In
doing so, it is important to understand the difference between loan
qualification and approval.
Pre-Qualified
Getting pre-qualified for a home loan carries little if any weight when
it comes to actually getting the loan issued. Let's take a look at why.
Its time to buy your first home and you've done the research. The first
step is to find out how much you can borrow. Down to the bank you go
for a sit down with a friendly home loan officer. This person asks you
questions about finances, salaries, credit and so forth. You might even
be asked to fill out a short questionnaire. After a surprisingly short
time, the bank officer suggests a loan amount of around $300,000 is
probable. Being really helpful, the bank officer even prints out a form
letter with your name and the pre-qualification amount of $300,000.
Wow, that was easy...perhaps to easy?
The problem with pre-qualifications is they are based on best guesses.
The bank officer looks at no hard facts. When it comes time to actually
apply for the loan, you can be assured the lending institution isn't
going to be willing to guess. In fact, you might be told you don't
qualify for a $300,000 home loan when push comes to shove. You might
only qualify for $250,000. In nightmare situations, you might not
qualify at all because of credit problems. In short, home loan
pre-qualification is a waste of time for the most part.
Pre-Approval
Getting pre-APPROVED for a home loan is definitely your best option.
Getting pre-approved for a home loan is an excellent strategy because
you actually go through the process. Issues such as income, credit
scores, personal wealth and so on are resolved. At the end of the
process, the bank agrees to issue a loan up to a certain amount
contingent on an appraisal of the home you eventually decide to buy.
The lender will produce a letter indicating as much, and it is a very
valuable letter.
A pre-approval letter is instant gold in the real estate market. If you
were selling a home, would you prefer a buyer with a pre-approval
letter or one without? The answer is obvious and leads to another
advantage. In the current market, it is likely you will be bidding
against other parties for property. A seller is much more likely to
select your bid because they know the loan process will go smoothly.
This can make all the difference when it comes to closing a deal.
Determining how much money you can borrow is the first step in the
purchase process. Just make sure you get a pre-approval letter, not
pre-qualification guesses.
