I absolutely cannot overestimate the importance of the pre-qualification process as the very first and most important step you can possibly take.
What is meant by pre-qualify or pre-approve? All of us want to know the top price we can afford to pay for a home. Unfortunately, the maximum price is irrelevant. The only thing that matters is the maximum mortgage we can get. Unless you are one of the lucky few who can pay cash, the bigger the mortgage, the more you can afford to pay for a home - bigger mortgage, bigger price.
A popular technique in recent years is to ask for prequalifying interviews with lenders. Essentially this means that you contact a lender such as a Savings or Loan or a Bank before you go house hunting. A loan officer then does a screening interview. The interview may be formal or informal.
Informal screening takes 10 minutes or less. You tell the lender what you make, how much money you have in the bank and what your credit is like. The lender does some quick calculations on the computer and tells you how much money you can get on different types of mortgages toward the purchase of a home. The problem here is that "You can't take it to the bank." This informal information carries no weight with sellers or with agents. It is nothing more than an opinion...it has no negotiating value.
A formal screening takes longer. You go to a specific lender. The lender takes a written application from you. You are asked to fill out information on every aspect of your financial life going back many years. Some of the questions seem personal. They are! Just grin and bear it! If you want the money, you have to bear your soul. Once the application is in, the lender may ask you for money. You may be asked to come up with around $50.00 for a credit report. Usually a day or so later, you'll be notified of the size of the loan you qualify for from your formal screening and be given a letter. This is a fairly hard commitment. You can usually bank on it. Now you can seriously go house hunting.
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