The pre-qualification process should be the first step in the home buying process. Without this, you are guessing at the price of your potential home.
The following will provide a general overview of the pre-approval and pre-qualification process.
Getting pre-qualified is fairly simply. You need to provide a lender or bank with a general overview of your financial situation. It’s important to give your lender accurate information, as this will save time and hassle later in the process. After evaluating your debt, income, and assets, your lender will give you an idea of the loan amount for which you qualify. Additionally, you should get an initial idea of the types of mortgages available to you. It’s important to keep in mind that this is not a guarantee; it’s possible that more review will need to be done before you can be issued a mortgage.
The next step in the process is to fill out a complete mortgage application. This step is much more in-depth, as it includes an extensive review of your financial situation. Because it is much more in-depth, you can get a better idea of your interest rate and loan amount. An advantage of getting pre-approved is that you will know exactly how much you can afford, saving time and effort that might otherwise be spent looking at homes beyond your price range. Additionally, your offer will be more competitive when compared to others who have not received a pre-approval.
Lastly, you need a loan commitment. Not only does your lender need to approve you, but also approve the home and ensure that it appraises at or about the loan amount. At this point, your lender will bring up any issues with the house that were brought up during the inspection process. If needed, your credit will be checked again to ensure that nothing has changed. Finally, you’ll receive a loan commitment letter when the lender is certain they’ll provide the loan.