Why You Should Find a Lender Before You Find a HouseThere are three ways to approach a mortgage application. You can simply apply outright, you can get prequalified, or you can get preapproved. There are differences between each of these approaches, and the one you pick could determine whether or not you lose out on the home you plan to buy. Yes, how you apply for your mortgage makes that big of a difference. Don’t Apply for a Mortgage A mortgage application occurs after you’ve found the home you want to buy. This means you’ve met with a real estate agent, you’ve found the home of your dreams, and you’ve met with the seller to make an offer and negotiate price. You’ve completed all of these steps, but you haven’t contacted a lender. You have no assurance that you’ll qualify for the loan amount you need. If you run into any obstacles during the mortgage process, there’s a good chance the seller may move on to a more serious buyer. Don’t approach your mortgage this way unless you have perfect credit and enough cash on hand to close the deal immediately. Take steps early in the process to acquire the financing you need. There are two ways to do this. Prequalification Prequalification and preapproval are not the same thing. Though either is better than nothing, prequalification won’t get you very far. The steps involved in a prequalification are as follows.
It sounds simple, and it is. In fact, prequalification is so simple it’s not worth much in the real world. When you contact your lender to get prequalified for a loan, your lender doesn’t actually research your financial situation. The information you provide is unofficial. It can even be delivered verbally. In other words, prequalification isn’t much different than stepping into a broker’s office and saying, “I make $35,000 a year. I have good credit. How much can I borrow? As a result, the loan qualification your lender provides is equally unofficial. It may as well be an educated guess. Your lender hasn’t seen any official paperwork yet and can’t make any final decisions. Your lender is not obligated to honor the loan estimate provided. Preapproval Preapproval is a formal commitment between your lender and you. It is founded on a detailed review of your official documents and guarantees you the loan amount your lender decides on. If you’re preapproved, your loan application is essentially complete. You’re finished with the difficult parts of the process. There are a few steps in the preapproval process. Your lender will formally pull your credit and request the same documents you would provide if you were applying for a loan. With these documents in hand, your lender can make an informed decision about your financial situation and guarantee you a viable loan amount. If you do this before you start searching for a home, you’ll gain several benefits.
Preapproval has become a necessary step in purchasing a home. You neglect it to your peril. Don’t wait until you’ve found a home to apply for a loan outright, and don’t settle for simple prequalification. Take the time to get preapproved. |
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