Mortgage Basics: Information for First Time Home Buyers

Do I need to pick a property before I apply?

No. In fact, you should not even begin shopping for a home until you've applied and been approved for a mortgage loan. Being pre-approved for a loan (that's pre-approved, not pre-qualified) is the only reliable way to know exactly how much you can spend, how much it cost, and how long you have to spend it. The distinction between pre-approval and pre-qualification .gif"t always the same from state to state and from one lender to the next. Be sure you understand the difference. It may help to write the following definitions down so that you'll have them with you the next time you contact a lender. Here they are: A pre-approval means that you have completed a complete mortgage application (or someone did it for you), your credit has been pulled, your income and assets have been verified and you have been provided with a written approval letter which states the maximum amount of money you may spend, the interest rate it will cost you and how long you have to spend it. As long as the information you provided on the application remains the same, all that's left is to find a property with an appraised value that's at or below the sale price, which is at or below your maximum loan amount. A pre-qualification means that a licensed Loan Officer or mortgage company has made an educated guess as to whether you might qualify for a loan, based on stated income, stated assets, and stated credit history. Stated, simply means that they are basing their opinion on whatever you told them your income, assets, and credit history are. This has considerably less weight than a pre-approval does, especially when placing an offer on a home at the same time as someone who has been pre-approved. Real estate agents aren't new to this process. They know that a pre-approved buyer .gif"t out of the woods, just yet, but a pre-qualified buyer hasn't made it to the trees. In other words, there may be fewer risks involved in accepting a lower offer from an approved buyer than letting the home sit on the market for an extra month or two if a pre-qualified borrower runs into problems during the loan approval process.