| You can improve your purchasing
power when looking for a home by making sure you
are prequalified or preapproved by a mortgage
lender.
Prequalification:
• A mortgage lender will evaluate a potential
homebuyer's credit report plus earnings, savings
and debt information to get an estimate of the
mortgage amount the borrower would qualify for.
This is based on documentation the borrower has
in hand, or what the borrower tells the lender.
The review can take as little as a few hours or
as long as a few days.
• Prequalification is usually free.
• For an estimate of buying potential, see
How much house can you afford from part I of the
mortgage basics section.
Preapproval:
• This process goes a step further than
prequalifying. Preapproval means the lender has
contacted the borrower's employer, bank and other
places to verify all claims of earnings and assets.
In return, the borrower receives a letter stating
that the borrower has mortgage approval for a
certain amount.
• Since you already qualify for financing,
preapproval can speed up and improve your chances
of reaching an agreement on the purchase price
with the seller.
• The only cost for preapproval may be the
lender's cost of obtaining your credit report.
With a preapproval, you're going to have more
leverage when you make an offer. When you've
got a loan approved already that's sufficient
to purchase a particular home, that makes you
more attractive to a potential seller.
Once you and the seller agree on a price, you
both will sign a sale contract, which will spell
out conditions each party must meet for the sale
to go through. A closing of the sale generally
hinges on both the buyer's ability to obtain the
mortgage loan and the seller's completion of some
home repairs.
Remember if any of your financial circumstances
change before closing on the sale of the home,
you must contact the lender. The loan prequalification
or preapproval may no longer be valid.
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