If you've decided to buy a house, the first thing you shouldn't do is look for one. You should instead figure out what you can borrow. In order to do this, it is important to know the difference between qualifying for a loan and getting one.
Pre-Qualified
Getting pre-approved for a home loan doesn't help much, if at all, when it comes to getting the loan. Let's look into why.
You've done your research and are ready to buy your first home. First, find out how much money you can borrow. You go to the bank to talk with a helpful home loan officer. This person asks you about your money, your salary, your credit, and so on. You might even be given a short survey to fill out. After a very short time, the bank officer says it's likely that the loan will be for around $300,000. The bank officer is so helpful that he or she prints out a form letter with your name and a $300,000 pre-qualification amount. Wow, that was simple, maybe too simple.
The problem with pre-qualifications is that they are based on best guesses. The bank employee doesn't look at hard facts. When it's time to apply for the loan, you can be sure that the lending company won't be willing to guess. In fact, when push comes to shove, you might be told you don't qualify for a $300,000 home loan. You may only be able to get $250,000. In worst-case scenarios, problems with your credit might make it so that you don't qualify at all. In short, pre-qualifying for a home loan is usually a waste of time.
Pre-Approval
The best thing you can do is get PRE-APPROVED for a home loan. Getting pre-approved for a home loan is a good idea because you go through the whole process. Things like income, credit scores, wealth, and so on are taken care of. At the end of the process, the bank agrees to give you a loan up to a certain amount if the house you decide to buy has been appraised. The lender will send you a letter saying this, and it will be a very important letter.
In the real estate market, a pre-approval letter is like gold. Would you rather sell your house to a buyer with a pre-approval letter or one without? The answer is clear and brings up another benefit. In the current market, it's likely that you'll have to compete with other people to buy a home. If a seller knows that the loan process will go smoothly, they are much more likely to choose your bid. When it comes to making a deal, this can make all the difference.
The first step in buying something is to figure out how much money you can borrow. Just make sure you get a pre-approval letter, not pre-qualification guesses.
