If you’ve decided the time is right to buy a house or condo, you might be tempted to start searching for your dream home right away. It’s fun to click through sites filled with MLS listings looking through countless photo galleries and virtual tours of beautifully staged dwellings. However, before you fall in love, you need to know what you can afford, and what is realistic.
The very first step in the process should be to get pre-qualified for a mortgage and find out what you will need to become pre-approved. Pre-qualification and pre-approval are different, albeit closely related steps in the process of becoming a homeowner. Think of pre-qualification as being more for yourself; to let you and your realtor know what your price range is, while a pre-approval is more for the seller and the bank–it proves you can borrow a certain amount from a specific lending institution to use toward your new home. If the pre-qualification is your resume, the pre-approval is your letter of reference.
A pre-qualification is based on a few figures that you provide, like your income, the amount of down payment you are prepared to contribute and your existing assets and debt. It’s all based on your word. A pre-approval takes longer to acquire, because you will be required to submit documentation supporting the figures provided for the pre-qualification. For these reasons, it makes sense for most people to become pre-qualified, then start shopping for homes in their price range, while at the same time, gathering and submitting paperwork for pre-approval.
Timing is important. Pre-approval letters typically come with an expiration date, so it will definitely benefit you to shop while you are still going through that process. By the same token, if you find a home and have not started the pre-approval process, your offer can fall through if a competing buyer with a pre-approval letter steps up.
A pre-approval is “pre” because you are approved before you find a home. The amount a lender will actually lend for a specific home can change, depending on factors such as the type of loan and the results of the home appraisal.
The bottom line is, your first stop on your homebuying journey should be to shop for a mortgage lender, not a house. Most realtors will encourage you to do so before they even start looking at homes with you.
If you want to learn more about applying for a mortgage, pre-qualification and pre-approval, visit lonestarfinancing.com.
Mallory Carra, “Do You Really Need to Get Mortgage Pre-Approval?” Trulia.com.