| #2 PREAPPROVAL VS. PREQUALIFICATION |
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10 Steps to Buying Your Home
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Now
that you have your list of features you want in your new home, You are going to need to know in what
price range to look. There are two ways to go about this. You can get prequalified
or preapproved for a mortgage. Either way you will need to
contact a mortgage
company. Go to our
Mortgage
Center to investigate rates and companies in your area.
There
are some key differences between prequalification and preapproval for
a loan that you need to be aware of. Loan
prequalification is a simple process. It takes into account very basic
information regarding
your financial status and gives you an amount for
which you may qualify. This can be done strictly on a verbal level or
electronically over the Internet. The prequalified amount is based solely
on the information you provide. In most markets, prequalified buyers usually
hold little clout compared to preapproved buyers due to the fact that
the information given during the prequalification process is not thoroughly
investigated and therefore may be unreliable. Where a preapproved buyer
is actually approved for a loan of a certain amount, a prequalified buyer
is only told that they might be approved for a certain amount.
Preapproval is a much
more involved process. The lender will take all pertinent information
regarding your finances and perform an extensive check on your current
financial status. This will ultimately give you the exact amount that
you will be eligible for (depending on what type of loan you decide to
go with). Being preapproved lets the seller know that you have gone through
an extensive financial background check and there should be no unexpected
obstacles to buying the home. You can see how being preapproved would
be more attractive to a seller than just being prequalified.
The type of mortgage
you apply for will depend on many factors, but the majority of that decision
will be based on your ability to pay a monthly installment. If you can
only afford a $1000 dollar a month payment, you are not going to go out
and buy a $250,000 home, unless you have a large sum of money set aside
to make a sizable down payment! Financial planners say that you shouldn't
pay more than 28% of your gross income for housing (that includes principal,
interest, taxes, and insurance). Depending on your debt to income ratio,
that percentage may change.
Once you have determined
what you can afford, the next step is to choose a mortgage plan. There
are many different mortgages out there, so take some time and explore
all of the possible plans for which you qualify. You could save yourself
thousands of dollars in the long run!
Your
agent can save you time and money by being your professional
guide through the entire loan process. They will be able to counsel you
on the advantages and disadvantages of certain types of loans and help
you understand the "real" cost of a mortgage. Your agent will
also act as your personal advocate and liaison between you and the lender
as you proceed through the approval process and closing by working with
your lender on a regular basis.
