Getting approved for a loanWhen buying a home there are many steps that need to be taken. This article is part 2 of a series of 6 articles. These steps provide an outline of what needs to be completed in the path to home ownership. They are not representative of all the steps but they will provide a brief outline of the most important ones. Once you have completed Step 1: Hire a Realtor® then it’s time to get approved for a loan.

2. Get approved for a loan

Often times I hear, why should I get approved for a loan when I don’t know how much I need yet?

This is a very common question, which is understandably asked, but there are some very important reasons why it is in your best interest to have your financing arranged before beginning your home search.

Would you go to Neiman Marcus to buy a coat on a Target budget? On the other hand, you just might have a Neiman Marcus coat budget in which case, why look in Target? Home buying is much the same. Knowing how much you have to spend can prevent you from shopping in the wrong stores.

One of the first things regarding home financing that is often misunderstood is the amount that you need to be financed for. It’s not necessary to know at this point how much money you need to purchase a particular house. The only things you really need to know is how much you can comfortably pay each month for a house payment and how much you can put down on your home purchase.

Loan CalculatorWhen you first approach a mortgage loan officer, they will do several things. They will check your credit, ask you how much you can use as a down-payment, how much you want to pay each month and how much you earn. Knowing how much you have for a down-payment, combined with the other information the loan officer will gather will go a long way to getting you pre-approved for a loan. The pre-approved amount that a loan officer will qualify you for is the amount that will be used as a parameter for your home search.

Just because you qualify for a $300,000 loan does not mean that you need to spend that amount but it does mean that you will not be approved for any more than that. So there is no sense in looking at homes in the $400,000 range when you cannot get financed for them. However, you can safely look up to the $300,000 price tag.

Having a pre-qualified letter from your lender will give you greater negotiating power. Many home sellers are less willing to take their home off the market while under contract so that you can take the time to get qualified for a loan. However, if you are already pre-qualified then a seller will be more likely to negotiate a contract with more favorable terms for you.

Becoming emotionally attached to a home that you cannot afford to buy can be detrimental to the home buying process. All too often buyers who are not pre-qualified look at homes in price ranges that they cannot qualify to purchase. Some find a home, which they feel, is perfect for them but they don’t end up qualifying for. This can cause a lot of anguish when the buyer realizes that the home of their dreams needs to come in smaller square footage or in a different neighborhood, if they are going to be able to buy it.

By being pre-qualified you can prevent a lot of wasted time and energy looking at homes either below or above your price range. It can also save time and money when negotiating a contract. The time when you could wait until you find your perfect home before beginning the financing process is over. With borrowing standards even more stringent, being pre-qualified for a home loan prior to beginning your home search can prevent a lot of undue heartache.

On a side note, there is often confusion between being pre-qualified and pre-approved. Very often these words are used interchangeably. However, there is a very real difference between them and it’s important to know that difference.

Pre-approved: Occurs when you verbally provide your lender with all the required information and based on that information, the lender will give you a dollar amount and some basic terms. Very often this process can be conducted over the phone, however it is not an accurate picture of amount or the terms you can be financed for.

Pre-qualified: Is the step after pre-approval. This is when the lender gathers all of your documents, like paycheck stubs, bank statements and tax returns and then verifies them. Based on the results of the verification process the lender will provide you with a pre-qualification amount. This step must be completed before a lender will finance a loan for you.

All homes for sale buttonWe have lenders that we work with very closely that can make the pre-qualification process smooth and streamlined. We can help you gather the required information and walk you through the process so that between us all we can make your dream of buying a home a reality.

Once step 1 and 2 are completed then you can begin your home search with the confidence of knowing that you have a Realtor® to guide you and provide you with a complete list of available homes and a lender that has already pre-qualified you for a loan, so now you know what price range you can confidently search in.

Step 1: Hire a REALTOR®

Next step will be Step 3: Begin your home search