My Insurance Insider and Finance Blog

Image by 4PIZON via FlickrIf you are fortunate enough to be pre-approved for a home mortgage loan, it can give you an advantage over other potential buyers who may be interested in the same home or property.

If you take the step of being pre-approved, it’s an indication to the home seller that you are, indeed, serious about buying the home and may put your bid ahead of other buyers who may not be as financially sound.

So, how do you go about being pre-approved for a loan? Begin by doing a complete and honest self-evaluation of your financial situation. Make a list of all your assets comprising of your cash, bonds, savings, stocks, mutual funds, etc. Then make another list of all your debts, e.g. your car payments, credit card payments, personal loans, and student loans. A difference of the two will tell you how much you have available toward buying a house.

This will give you a practical picture of just how much you can comfortably borrow and how much you will qualify to borrow. Keep in mind, that you will have other additional expenses associated with buying a house. With this financial information, you will be in a better position to begin the process of being pre-approved with a lender.

Often the terms “pre-qualified” and “pre-approved” are used interchangeably and can confuse a home loan shopper. The fact is there is a big difference between being pre-qualified and pre-approved. To be pre-qualified means you contact a lender and give your financial details over the phone and an “in file” credit report is created by the loan officer.

This information is therefore basically unverified. Based on this the loan officer will give you a pre-qualification verbally or give you a letter to that effect - subject to a variety of conditions. Actually, to be pre-qualified for a loan is a simple process that does not necessitate you using a particular lender alone. This is a very initial stage, much earlier in the stage of operations than when the home seller emerges.

A pre-approval refers to a formal commitment from a lender once you have filled out an application for a residential mortgage loan and your details have been verified. These details will include a “tri-merge” credit report from the three largest credit reporting agencies - Equifax, Experian, and Trans Union Corp.

In order to get the best deal at a price that doesn’t hurt you too much, you need to shop around for the best mortgage rate, APR, the best loan and terms that suit your financial situation best before you see a home seller. Be sure you get a mortgage loan commitment from your loan officer rather than a mere pre-qualification letter.

It is not recommended to allow your real estate agent to act on your behalf as a mortgage loan officer too. The real estate agent should be focused on the property location and price you are seeking and not occupied with the financing. Let a good, competent loan officer who has your best interests in mind deal with the financing end.

Ask a friend, neighbor, or co-worker for suggestions as to which loan officer or lender they have had experience with. Also, speak with two lenders or loan officers before deciding. When you get pre-qualification letters from different loan officers, be sure to evaluate them carefully and see the differences between the two. Take a hard look at the APR rate.

Above all else, ask the loan officer about anything you don’t understand. Don’t commit to a particular lender without a full understanding of the terms and conditions of your home loan. Many unsuspecting home buyers have been caught in a loan they didn’t understand. Don’t be afraid to ask questions because it could save you thousands in the long run and possibly save your home.

To be pre-approved gives you an edge when shopping for a home. You learn to identify the price range in which you’re looking to buy a home. It is easier for a home seller to accept your offer if you’re bidding against a non pre-approved buyer.

As in any new venture, preparation is a very important step. After all, this is a business scenario involving big money, loans, etc. It is necessary you get pre-approved for a loan before you start pinpointing the house you want. Besides, pre-approval will put you in a better negotiation position with the home seller by allowing you to move in quickly when you find the best house at the right price.