Pre-approval is the first step in the home buying process. I know, I know, once you, the first time homebuyer, have decided it's time to go after your first home with full force the first thing you want to do is... start looking at homes! You see "For Sale" signs everywhere you turn. "Look at this!" "Look at that!"
So you see an immaculate home that you just must have. You find out what the asking price (list price) of the house is, and you mentally begin to run figures, "Income...savings...possible promotion..."Buying a house doesn't really sound like a bad deal!
STOP!!! Have you been pre-approved, or even pre-qualified yet? Do you or your realtor know how much you can afford? You see, I'm human, just like you. I sometimes get caught up in the moment, before I think the situation through in entirety. I've got a great job, am making a little money, and feeling pretty good about myself. Why not? Go out and splurge! Buying a home is a HUGE investment, one that many people will only do a couple times in their lives. This is a choice of mammoth proportions and you really need to think the entire through, from beginning to the complete end.
You need to know all of the steps to buying a home. You need to know what needs to come first, second, third... You need to know the many people who are involved in a single real estate transaction, the various timeframes, and the numerous pitfalls that can cause the deal and your dreams to crumble. Obtaining a pre-approval, or at least a pre-qualification is the first victory that can successfully lead you to the victorious title of "Home Owner!"
Now, pre-qualifying yourself before you start looking for a home gives you a general idea of the price range you can afford. A lender takes a look at your income and expenses and plugs them in to a debt-to-income ratio. (Click here for approved lender) This usually takes about 15 minutes and sometimes can be done by phone. It does not typically include an analysis of your credit report or an in-depth look at your true ability to buy a home. It will not nail-down an interest rate for you, nor will it take into consideration other factors that will affect the monthly payments a bank will allow you to make. A Pre-approval means a lender has looked closely at both your credit report and your income and determined that you qualify for a loan. The lender will tell you the maximum amount of loan it will make, which loan program(s) you qualify for, and will discuss the interest rates it will offer for different types of loans. Really, a seller will not even look at your offer on their home with any sincerity unless it is accompanied with a pre-approval, so let's get first things done first, and soon enough become an overjoyed first time home owner!