Buying a home can be one of the most exciting (and costly) purchases you will make during your lifetime. One of the most important steps in the process is determining how much you can afford. Yet, many people wait to secure financing until it is absolutely necessary. In a competitive housing market, having your financing in place before you start your home search gives you the ability to place an offer immediately after viewing the home of your dreams and making that offer stronger. It also allows you to focus on the more enjoyable decisions like choosing a neighborhood.
PRE-QUALIFICATION VS. PRE-APPROVAL
Pre-qualification and pre-approval are two common words thrown around in the mortgage industry. Pre-qualification is an unofficial estimate of how much you can borrow and repay for your home purchase. The amount lending institutions will pre-qualify you for is derived from the information you provide on your finances, credit history and income. Obtaining Pre-approval requires you to submit financial documents, such as tax returns, business licensing, and bank statements. Lenders will analyze the documents, run credit checks, and verify employment. The pre-approval process verifies you have the ability to repay the amount for which you are approved and carries more weight when you submit an offer to purchase a home. Although it takes more steps to obtain pre-approval, it verifies to the seller that you have the financing available to follow through with the purchase. (more…)