When you’re ready to buy a home, one of the first steps you should take is to seek pre-approval – or better yet, pre-qualification – for a mortgage loan. These documents state how much a lender is willing to let you borrow, and, when you’re ready to put an offer on a property, they tell the seller you’re serious and that you’ve already taken the first steps toward seeking funding.

Pre-approval and pre-qualification can put you in a stronger buying position, but they are different processes. Here are the steps to take before pursuing either:

Watch your credit report
Don’t go into the pre-approval and pre-qualification process without getting a copy of your credit report, which lists your financial history, including total debt and whether you pay bills on time. Checking your credit report regularly is the best way to spot identity theft, credit-report errors or other financial missteps that could affect your ability to buy a home. You’re entitled to one free credit report from each of the three credit-reporting bureaus every year. Find out how to obtain your free reports at annualcreditreport.com.

Prepare for questions
When you’re seeking pre-qualification or pre-approval, your loan officer will request information from you, like pay stubs, bank records, your credit history, debts and tax returns. It could take some time to gather these details, so you may want to meet with a loan officer early in your home search. You should also start thinking about your answers to the loan officer’s potential questions:

· When are you planning to buy?
· If you’re in a lease, when does it end?
· Who will be listed on the loan?

 This information will help determine your timeline for borrowing.

What is pre-qualification?
To prequalify you for a mortgage loan, your loan officer uses the information he or she collects to calculate how much money you may be eligible to borrow. However, all information you submit during pre-qualification is subject to verification when your loan application is actually submitted. The home loan isn’t guaranteed with pre-qualification because your financial situation hasn’t been verified. You may receive a Conditional Qualification Letter, which states that you’re eligible and qualified to meet the financial requirements of a loan.

What is pre-approval?
Pre-approval typically means that your financial situation has actually been verified by the lender. If you want to get pre-approved, you’ll complete a mortgage loan application, and you may have to pay an application fee. After an extensive examination of your financial situation, a lender will commit in writing to fund your loan, pending a successful appraisal of the property and a few other conditions. Being pre-approved for a mortgage loan doesn’t mean you’re obligated to borrow the money, but the lender must stand behind its written loan commitment unless something changes with your situation. Think about how attractive your offer will be to a seller when it comes with a letter pre-approving you for the funds needed to make the purchase.
Put major purchases on hold
There are some reasons that could cause a lender to withdraw from providing a loan after a pre-approval letter is issued. If your credit situation changes between your pre-approval and the loan’s funding, the lender could change your interest rate or even deny the loan application. So, while you’re buying a house, abstain from applying for credit cards or other loans.

Let’s get started!

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