Buying a house is a huge financial commitment. It could potentially be the biggest financial responsibility that we’ll have in our lifetime next to raising children. Preparing to buy a house can be very intimidating at times. How do we really know if we’re ready for such a financial commitment?
It can be tricky navigating your way through the minefield that is mortgage lending. One wrong step and you’re accepting terms considerably higher than what you initially thought they’d be.
Always remember that a “pre-approval” carries more weight than a “pre-qualification”.
Being pre-qualified is often nothing more than a meaningless promotional gimmick implemented by some lending institutions. Pre-qualification is a lenders disclaimer that you “appear” to meet the criteria needed for a mortgage loan but there has really been no formal evaluation to determine this. The bank is pretty much saying, “Hey, look at these fantastic rates that we can get you pre-qualified for.”.
The lender or broker will ask you a few vague questions regarding your income, any assets you may own, monthly expenses and your current credit card debt. There is no credit check (since they don’t ask for your social security number) nor is there any verification of the income or debt that you claim.
Borrowers are told that they pre-qualify for a specific loan amount based on the information provided. It’s important to remember that this information is tentative. Pre-qualifications are the lender’s way of more or less providing the home seeker a false sense of confidence while shopping for a house. They are also an easy way for the financial institution to lure you in to complete a loan application when you’ve found a house and are pressed for time. It is usually here where it’s revealed that the loan terms come closing time will most likely differ from what was advertised.
Getting a pre-approval from a mortgage lender is definitely the way to go. Regrettably, a fee of few hundred dollars usually accompanies mortgage pre-approvals. It’s possible through an Internet search to find a lender that offers free pre-approvals.
Anyone interested in buying a house simply approaches a lender, who in turn reviews his or her credit history and verifies income to determine a loan amount that the potential borrower can be approved for. While a pre-approval letter isn’t a guarantee that a loan will be provided, the letter puts you at advantage over others, showing sellers and their agent that your offer is serious.
It’s never too early to see if you qualify for mortgage pre-approval. Even if you are currently renting, with several months remaining on your lease, if you’re certain that owning a home will be your next step, finding out if you’re able to get loan pre-approval will help you determine what homes are in your price range. And, if you are declined pre-approval, applying a few months early can give you some time to work on whatever issues led to you being denied. For instance, if a low credit score is the culprit, you’ll have some time to get your finances in order and pay off some of that troublesome accumulated debt.
This makes much more sense that finding your dream home, only to have those dreams come crashing down, when you learn that nobody will approve you for financing.
Simply put, applying for financing first can save you and your Realtor some time, aggravation and potential embarrassment.
Author Resource:
Bella Kellogg is a real estate writer and contributor to Connecticut real estate
websites like, Homes in CT , and CT Homes for Sale Org .
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