Prior to looking
at any property, it is a good idea to determine
if lenders consider you a creditworthy borrower
and approximately how much they will let you
borrow. There are typically two ways to go about
this:
Pre-Qualification
Loan
pre-qualification is nothing more than a cursory
overview of your financial assets by a lender
based on what you tell them. After taking into
account your present gross income, your
expenses, and your cash savings for a
down
payment, a lender will give you an estimate of
the mortgage you are qualified for.
Pre-qualification is often cheap or free, and
usually requires only a few hours.
However, because
it is only a cursory overview, pre-qualification
can be a potential waste of time and money. If,
for example, you decide to apply for a mortgage
after looking at property only to discover that
there were additional financial liabilities or
credit blemishes that turned up under closer
scrutiny of your records, you could find your
borrowing power substantially diminished, or
your application
rejected outright.
Pre-Approval
Loan
pre-approval is significantly more thorough than
pre-qualification. During pre-approval, lenders
will contact all banks and employers to verify
your earnings and assets, as well as review in
detail your credit history, your income and
expenses, your savings, and even your prospects
for future employment. Unlike the
pre-qualification process, a pre-approval can
take weeks to complete, but in the end, you will
have proof that you are a qualified borrower
worth consideration. This will give you more
leverage in negotiations and can also be a real
benefit if you find yourself in a situation
competing with other buyers for the same
property.
Also, be sure to
keep in touch with your lender even after
pre-approval. Inform them if your financial
situation changes in any way, and in return,
they can keep you informed about any changes in
interest rates that might affect your loan.
Mortgage Glossary3
