Your home purchase is two major transactions in one -- the actual sale of the home plus the loan you'll use to pay for it. Unlike auto and other financed purchases that you shop for first and worry about financing only when you're ready to buy, it's best to get the ball rolling on your mortgage loan before you start house-hunting. Although you won't have your loan approval before you make an offer on a home, you should have pre-approval from a qualified lender.
Applying for your mortgage pre-approval is a quick process -- the mortgage representative simply asks you for some basic information about your finances and runs a credit report. An automated process gives the representative a preliminary decision almost immediately. The representative then issues a pre-approval letter that states how much money you qualify for. Although the letter can come from any lender you choose, a pre-approval does not obligate you to use the same lender for your loan.
Why a Pre-Approval
Real estate agents and home sellers want to work with prospective buyers who are ready, willing and able to commit to a home purchase. A mortgage pre-approval shows that you're serious -- people who are still at the browsing stage rarely bother applying for one. In addition, you'll make the best use of your time and everyone else's if you set your sights on homes you can afford. The pre-approval gives you a figure to use as a guide.
When to Apply
Apply for a mortgage pre-approval as soon as you decide you're ready to buy a house. Ideally, you'll start several months before you begin looking because the pre-approval process helps identify credit problems likely to cause the lender to deny your formal loan application. If the lender can't issue a pre-approval because you have credit issues you need to fix, the mortgage representative will tell you what steps you need to take to get your credit back on track, then check your credit score periodically to gauge your progress. You can start looking for homes as soon as you qualify for the pre-approval.
Using the Pre-Approval
Bring your pre-approval letter to your first meeting with your real estate agent. Ask the agent to copy it and keep it in your file. Your agent may need to submit the letter before you can view some homes; for the most part, however, you won't need the letter until you make an offer. At that point, your agent sends a copy of the letter with your written offer. The letter serves as proof of your ability to buy the home. You'll make your formal loan application right after the seller accepts your offer.
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