Know Before You Buy
You’ve probably heard that it’s important to have your financial affairs in order before beginning the process of buying a home. But what does that mean? Well, besides paying off existing debts and holding off on large purchases, it’s a good idea to do some preliminary legwork by getting pre-approved or pre-qualified for a mortgage before you dive into the house-hunting process.
The difference between a pre-qualification and a pre-approval for a loan is commonly misunderstood. Although either scenario puts the consumer in a stronger position as a buyer, being pre-approved carries much more weight. It helps your REALTOR® know how much you can borrow, which enables him/her to show you houses in your price range. It also makes the next step-actually getting a loan-relatively fast and easy.
What does it mean to get pre-qualified?
When you are pre-qualified for a home loan, you provide a lender approximate income, current debts and any important details from your credit history. The lender will use these figures to calculate how much money you may be eligible to borrow prior to application for a loan.
You may be provided with a Conditional Qualification Letter, which determines your likelihood of obtaining a loan. However, all information submitted during pre-qualification is subject to verification at the time the loan application is submitted. Because your financial situation has yet to be verified, there is no guarantee of a home loan.
What does it mean to get pre-approved?
Typically, pre-approval means that your financial situation has been verified by the lender.
When you get pre-approved, you actually fill out a mortgage loan application and in some cases you may even have to pay an application fee. After an extensive examination of your financial situation, your lender will commit, in writing, to fund your loan, pending a successful appraisal of the home and a few other conditions.
Additionally, even though you’re not obligated to follow through with the loan, pending any changes, lenders must stand behind their written loan commitments.
Having a pre-approval letter is as close to a sure thing as you can get in the lending world. It enables you to act quickly when you find the right home and gives you more legitimacy as a buyer because your offer is not contingent upon obtaining financing.
There are some things that could cause a lender to withdraw from providing a loan after a pre-approval letter is issued. Many lenders will re-check a consumer’s credit before funding a loan. Abstain from applying for any new loans, including credit cards. An inquiry into your credit could lower your score and significantly affect your interest rate or cause a loan to be denied outright.
Don’t get surprised
If you haven’t done so already, get a copy of your credit report, which lists your financial history, including total debt and whether you pay bills on time. Checking your credit report regularly is the best way to spot identity theft, credit report errors, or other financial missteps that very well could affect your ability to buy a home.
The Fair and Accurate Credit Transactions Act of 2003 made it possible for consumers to access one free copy of their credit report every year. To request a report, visit www.AnnualCreditReport.com.
Be smart, take steps to secure your finances, and get pre-approved for a home loan. Soon you’ll be in the home you’ve always dreamed about.
Source: Texas Association of REALTORS®