It pays to be prepared
if you’re in a competitive market. If you are
fortunate enough to be pre-approved for a loan, it can
give you an edge over your competitors who may be interested
in the same home or flat who perhaps aren’t financially
sound. If you do therefore take the large step of being
pre-approved, it’s an indication to the home seller
that you are, indeed, serious about buying his home.
So, how do you go about being pre-approved for a loan?
Begin by doing an honest self-evaluation of your financial
situation. Draw up a list of all your assets comprising
your cash, bonds, savings, stocks, mutual funds, IRAs,
etc. Against that, make another list of all your debts—e.g.
your car installments, credit card payments, loans,
etc. A difference of the two will tell you how much
you have available toward buying a house. But bear in
mind that you will have other additional expenses associated
with buying a house. This will give you a realistic
picture of just how much you can comfortably borrow
and how much you will qualify to borrow. Accordingly,
you can meet up with home sellers and express your interest
in buying their houses.
With this information at your command, you will be
in a better position to begin the process of being pre-approved
with a lender. Actually, to be pre-qualified for a loan
is a simple process that does not necessitate you’re
using a particular lender alone. Once this is done,
you’re one step closer to meeting up with your
home seller.
This is the right time for you to learn the difference
between being pre-qualified for a loan and being pre-approved.
To be pre-qualified means you call up a lender and give
him your details on the phone and create an “in
file” credit report based on details given by
him. His information is therefore largely unverified
and based on this he will give you a pre-qualification
verbally or give you a letter to that effect, subject
to a variety of conditions. But a pre-approval refers
to a formal commitment from a lender once you have filled
out an application for a residential mortgage loan and
your details have been verified. These details will
include a “tri-merge” credit report from
the three largest credit reporting agencies—Equifax,
Experian and Trans Union Corp. This is a very initial
stage, much earlier in the stage of operations than
when the home seller emerges.
To be pre-approved gives you an edge when shopping
for a home. You learn to identify the price range in
which you’re looking to buy a home. This makes
it easier for a home seller to accept or reject your
offer if you’re bidding over a non pre-approved
buyer. You must also familiarize yourself with a comfortable
monthly loan installment.
As in any new venture, preparation is a very important
step—after all, this is a business scenario involving
big money, loans, etc. It is necessary you get pre-approved
for a loan before you start pinpointing the house you
want. Besides, pre-approval will put you in a better
negotiation position with the home seller by allowing
you to move in quickly when you find the best house
at the right price.
In order to get the best deal at a price that doesn’t
hurt you too much, you need to shop around for the best
mortgage rate, APR, the best loan and terms that suit
your financial situation best before you see a home
seller. To get pre-approved, be sure you get a mortgage
loan commitment from your loan officer rather than a
mere pre-qualification letter. And don’t allow
your real estate agent act on your behalf as a mortgage
loan officer too as it will put you on shaky ground.
To avoid such a situation, you should get a referral
from a friend, neighbor or co-worker. Also, speak to
two lenders or loan officers before deciding. Next,
take a hard look at the APR rate. Ask the loan officer
for referrals. At this stage, being pre-approved is
a somewhat distant dream for you—the formalities
being so many. And meeting the home seller? Just a little
farther off.
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