The excitement of buying a home can kindle urgency to start your Home Search. When you view homes for sale the American Dream gets closer to reality. However, instead of jumping in to view homes first, the smart first step in the process should be arranging your financing. This focuses you on a price range of homes that matches your personal finances, instead of looking at properties beyond your means. It can be very disappointing to have to step back to a lower price range to obtain a mortgage.
Fluctuations in interest rates may influence the size of home you can qualify for. When rates are low you can qualify for more house than when the rates are high. Various loan programs can influence the amount you can borrow, the rate that you will pay, and the cash required. These factors will influence your purchase. When you make these decisions before you look at properties, you reduce the stress that accompanies financing uncertainty.
There is another important reason to qualify first. A seller will not negotiate in earnest if you cannot prove that you can obtain a mortgage. When you present an offer to a seller, you will provide written proof from a lender that you have been examined and qualify for a loan.
If you find the right property, you should make an offer right away. A delay while you arrange your financing might allow another buyer to buy the property. If multiple buyers make offers at the same time, it will be the buyer with the best terms who is fully qualified that will win.
Written Proof of Mortgage Qualification
There are two kinds of written proof of mortgage qualification. The first is a pre-qualification letter. This document provided by a lender tells an interested party that the buyer has provided the lender with certain financial details. A lender will agree to make a loan based on a later verification of these details. In this case, the lender will not investigate a buyer's credit or verify the buyer's income or debts prior to issuing a pre-approval letter.
Oftentimes the wording in pre-qualification letters states that based on information provided by the buyer, the buyer will qualify for a certain loan amount. The lender will take the buyer's word for information such as income and assets. The lender does not pull a credit report. This is the weaker of the two letters because a buyer may report income, assets, debts, or credit inaccurately, and might not get the loan.
The second written proof is a pre-approval letter. This is the stronger letter of the two because the lender has placed you through a loan approval process. The lender will pull a formal credit report from one or several credit bureaus to check your credit and debt information. The lender will verify your income usually through a copy of recent pay stubs or a copy of the buyer's W2. This type of approval takes longer because of verification of the buyer's finances, but it provides greater likelihood of loan funding.
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