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Prequalification and Preapproval
Why get prequalified and then preapproved for a mortgage
before you begin your search for a home? Because there are
3 people who will benefit from your preapproval: You, your
Agent, and the seller from whom you eventually buy a home!
You: The most important beneficiary, of course, is you.
One of the most common questions we get from users of this
site goes something along the lines of "Please let us
know how much house we can afford." We're stumped!
Why? There are simply too many variables--credit history,
income, debt, special mortgage programs and variations in
qualifying guidelines between different mortgage types--to
answer that question. The only sure way of getting the
question answered is through prequalification. The
mortgage prequalification step is a relatively simple one,
but it is an important one. It begins the process of
formally applying for a mortgage, and it gives everyone
involved--especially you--a clear sense of the direction
they should be headed.
Your Agent: By knowing what your financial parameters are,
your Agent can spend more time looking for houses that
"fit" and less time pursuing dead ends. No
matter how much you might want a 4000 square foot home for
$275,000, if your qualifications say $125,000, your
qualifications say $125,000. When it comes to mortgages,
"yes, but" doesn't carry much weight!
The Seller: Want to strengthen your bargaining position?
Get prequalified. Want your offer to stand out in a case
of multiple offers for the same house? Get prequalified.
Look at it from the seller's perspective. If you had 2
offers on the table for your house, one from a fully
prequalified buyer and the other from an "I'll get
around to that soon" buyer--to which offer would you
devote the most attention? Even if the prequalified
buyer's offer was $1000 less, would you take the chance on
the buyer that perhaps may not be qualified? When it comes
to a seller evaluating offers, "a bird in the
hand..." definitely applies.
It is important to remember that the amount of mortgage
you will qualify for is the maximum. It is the amount that
the lender feels you can afford, but it is not necessarily
the amount that you want to pay. It sometimes is
advantageous to be conservative here. For example, if you
qualify for a $100,000 mortgage and you have $15,000
available in cash for downpayment and closing costs, you
are qualified to buy homes with a maximum selling price of
$115,000. So as to not push yourself to the limit, you may
want to look at homes that sell in the $100,000 to
$110,000 range. Too many buyers simply rush off to the
$115,000 level and some find themselves strapped when it
comes time to purchase necessary items (such as draperies,
additional furniture and lawn and garden tools, for
example) or when they forget to factor in increases in
monthly expenses (for example utilities and maintenance
and repair costs).
Virtually every lender will be able to process preapproval.
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