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The Importance of Being Pre-Qualified and Approved

The Importance of Being Pre-Qualified and Approved The importance of being pre-approved for a loan cannot be understated. In today’s market, it’s helpful to know your price range to save time, for flexibility and it makes purchasing a property easier by showing the seller you are serious and can afford the purchase. What does it mean to be pre-qualified and pre-approved for a loan? Being pre-approved for a mortgage means that a financial institution has researched your credit history and decided you would be a good candidate for a mortgage. There is a difference between being pre-qualified and pre-approved however. A pre-qualification simply means that a lender looks at your overall income, assets and debts to give you an idea of how much money you can borrow. This is mainly informational and can be beneficial to those who have very little credit or credit that needs improvement. This will start the ball rolling and give you the power you need to either build your credit or continue with the home buying process. The pre-approval process takes time, and begins before you begin your search for a home, but will benefit you greatly in the long run. You may choose any institution you would like to go through, or ask around and see if your friends, family or a trusted real estate agent have resources for a good lender. The steps to begin the process are:
  1. Complete a mortgage application, and supply the lender with documentation to check on your financial background and current credit rating.
  2. Next, the lender will provide you with the specific mortgage amount for which you are approved. This will also let you know what kind of interest rates you will be charged on the loan and some lenders will even let you lock in on a rate.
  3. When you know what kind of buying power you have, contact a licensed real estate agent (if you haven’t already) and let them know what kind of property you are looking for. A real estate agent can provide you with a multitude of information to help you purchase the property that will best fit your needs, within your budget.
  4. IMPORTANT: It is very important that you do not make any large purchases during this time, open any additional credit lines (credit cards, credit lines, automobile purchases, etc.), or drastically alter your financial stability as this can negatively affect your pre-approval!
  5. Once you find a property that suits you, your real estate agent will contact the seller’s agent and put in a contract. This is where the pre-approval can prove beneficial: If the seller knows your lender is prepared to provide you with funds to purchase the home, the likelihood of your offer being accepted is much higher than that of a person who has not begun the process.
  6. The final step in the process is to get a loan commitment, which is issued by the lender after you have been approved for the specific home you have chosen. During this process the home will be appraised and must be at or above the sales price. Sometimes the bank may need the property inspected, in addition to the appraisal, to investigate any potential issues.  The lender will also recheck your income and credit information to make sure nothing has changed since the initial approval.
  7. If everything is in order, your contract will move to the next steps of the home purchase.
If you’re looking to buy a home, the best way to show you are a serious buyer, find and snag your dream home, and make sure the buying process moves along quickly is to be pre-approved. If you have any questions about home lending contact one of our agents today!

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