If you are going to buy a new house, the first thing you should do before you even start shopping for one is to apply for a home loan. An application for a loan to buy a home before your transaction takes place involves either a prequalification or a pre-approval.
What is a pre-approval?
A pre-approval is technically a statement by the lender saying that he or she will fund your mortgage loan within a limited time period. If you have a pre-approval then the seller will see you as a serious buyer.
What is the difference between a pre-approval and a prequalification?
Like their names suggest, a prequalification means that you are qualified to get a loan from the sender whereas a pre-approval means that your request for a loan has been approved. This makes it clear that a pre-approval is technically one step ahead of a prequalification. There are certain differences in the processes you have to go through to obtain either of these as well; the lender takes more time to look into your financial status when you are applying for a pre-approval – and gets all your financial statements verified from your employer, your bank and other places.
Why should I get a pre-approval?
Carrying a pre-approval letter with you when you go to purchase your new home has many advantages. For one, the seller will know for sure that you are a serious buyer since you have taken the trouble to get pre-approved. Sellers will usually look out for buyers with pre-approvals, in fact, as they are reassured by the presence of the pre-approval letter. Negotiating the price of the house also become easier if you can show the seller your pre-approval because he or she will know for sure that you want to buy a house and will take you seriously and give you a good price for the house.
What is the process of getting a pre-approval?
You are going to get a pre-approval from your bond originator and the first thing you must do before getting a pre-approval, therefore, is to find a mortgage lender. Your real estate agent will help you with this step of the process – another way you can go about this is by asking your friends and family and your bank.
After you have found a lender, he or she will help you with the process of applying for a pre-approval. He or she will look through your credit report and check your debt-to-income ration. You will have to verify your income, the time period of your employment and your source of down payment. The lender will verify all the information he or she receives from you with the proper authorities, be they your bank, your employer or other places.
Your financial history, including all your assets, credits and incomes will be checked and the lender will then calculate for you the amount of loan you are eligible to receive. The only cost that you will incur for a pre-approval will be the amount that the lender will have to pay to get your credit report. After all this, you will receive a letter stating that you have a pre-approval for a certain amount of loan to buy a house.