Getting Pre-Qualified for a Loan

Buying a home is the greatest investment most people will make in their lives. With that being said, it’s important to go into the process with a thorough understanding of your financing options and what you can really afford. Most realtors will recommend you do your research on which lenders and mortgage programs are best for you before you even start looking at available homes. This way, you don’t end up wasting time looking at homes you can’t afford or losing out on a great deal because you weren’t financially prepared in a fast-moving market.


Meet With a Lender

Don’t assume you know how much you will be able to borrow. Instead, meet with a lender, either in person or on the phone. You can do your own research or ask friends, family, or your realtor for referrals. A locally-based lender with established community relationships is always the best. The lender will review your financial documents and credit file to determine your loan options. Most first-time borrowers will opt for a 30-year mortgage with a fixed interest rate. Some individuals may even qualify for government programs that offer a smaller down payment and lower interest rate. Your lender will likely discuss a number of possibilities available to you based on your financial situation. It is then up to you to decide which type of mortgage is most beneficial, in both the short and long term.

Please note, there is a difference between getting pre-qualified and being pre-approved for a mortgage. With pre-qualification, a lender is simply estimating how much they think you will be eligible to borrow, while pre-approval means the lender is ready issue you a mortgage loan based on the financial documents and information you have presented them. Pre-qualification is typically a free service; however, some fees may be associated with getting pre-approved.


Why Pre-Qualification is Important

A pre-approval or pre-qualification letter from a lender demonstrates your borrowing power to potential sellers. With this type of backing, you are less likely to lose out on a property because your finances were not in order ahead of time. A buyer with a strong pre-approval is better prepared, and thus more attractive to a home seller. This can be particularly important if you find yourself in a multiple offer situation. In cases like this, you could actually end up losing out on a deal if you fail to get pre-qualified before bidding on a “hot” property.


Other Things to Consider

It is also important to note, just because a lender approves you for a certain amount, does not mean that is what you can afford or what you want to spend. Sit down and take a realistic look at your budget to determine how much you are willing to commit to housing. While purchasing a home is an exciting step, ending up stretched on maintenance expenses and other monthly costs because your mortgage payment is taking up too large a proportion of your income, is never a good situation.

Also, keep in mind, pre-qualification or pre-approval from a lender does not tie you down. You are still free to shop around. Just be sure to consult with your realtor about time constraints regarding your closing. Once you have been pre-qualified for a loan and done your own personal calculations for how much you are willing to spend, you can begin your home search with the confidence that you are prepared to compete in a fast-paced housing market while still making a wise financial decision.



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