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What is Pre-Qualification?
Pre-qualification is an informal look at your income vs. debt to see how much of a mortgage loan you might qualify for. Pre-qualification does not take your credit into account, so it does not guarantee loan approval. It's just a quick review of your income and your debt -- the two factors that make up your debt-to-income ratio.
What is Pre-Approval?
Pre-approval means a mortgage lender has examined your credit and income much more thoroughly. When you get pre-approved, the lender will look at your finances as if they were approving you for an actual loan -- in other words, in great detail. This review will give you a good idea how much of a mortgage loan you can afford.
Heres a more formal definition of pre-approval: The process of applying for a loan and obtaining approval for a maximum loan amount before having a purchase agreement.
Home Buying 101 What s A Point, And When Should I Buy One?What s a Point?
A point, or discount point, equals one percent of a loan amount. For instance, one a mortgage loan of $200,000, one point would equal $2,000.
Why Do People Pay for Points?
Some home buyers pay points to their lender at closing in order to lower their interest rate over the life of a loan. Paying a point on a standard 30-year loan will typically lower the interest rate by .125 percent.
Should I Pay for Points?
Buying points can lower the interest rate of a mortgage loan, but that doesn t automatically make it a good option for every situation. For instance, if you only plan ..
Benefits of Pre-Approval:
With a pre-approval letter in hand, you can be more confident that the lender will approve your actual loan (after you make an offer on a home). Being pre-approved also shows sellers youre serious about, and capable of, buying their house. This can be a factor in hot markets where the sellers receive multiple offers.
For example, if you bid on a home along with three other prospective buyers, but youre the only one who has been pre-approved by a lender, then you stand the greatest chance of having your offer accepted.
The sellers will be more comfortable with you since a lender has said, in essence, "Yes, this person is worthy of a home loan." The buyers without pre-approval, on the other hand, would be "unknown quantities" to the seller.
Keep in mind, however, that while a pre-approval is stronger than a pre-qualification, it's still not a guaranteed loan. After you make an offer on a home, the mortgage lender will once again review your finances and credit. They'll also have the house appraised. Only when they've approved of both you and the house will they make an actual loan commitment.
Home Buying 101 -- How Much House Can You Afford?Starting a home buying process means answering a lot of questions:
Are you ready to buy a home? How much of a mortgage loan can you afford? How s your credit? What size house do you need? How are your cash reserves?
The more Q&A, research and soul searching you do in advance, the smoother the process will be later on. Let s look, then, at one of the key questions from this list.
What Can You Afford?
Before house hunting, you should determine how much of a mortgage you can comfortably afford. Comfortably means you can pay your mortgage each month and still have money for living expenses, ..
Conclusion:
Pre-qualification and pre-approval are two different things. Think of pre-qualification as a quick review from the lender, and pre-approval as a longer and more detailed evaluation. Pre-approval will help you identify credit problems early on. Pre-approval also shows buyers you're serious about buying.
Therefore, it's a good idea to get pre-approved before you start the house-hunting process.
* Copyright 2006, Brandon Cornett.
About the Author: Brandon Cornett is the editor of http://HomeBuyingInstitute.com" target="_blank"> http://HomeBuyingInstitute.com, one of the Internet's largest and most respected libraries of home buying information -- more than 100 expert articles in 12 different home buying categories! Put this knowledge to use by visiting http://www.HomeBuyingInstitute.com" target="_blank"> http://www.HomeBuyingInstitute.com.
Source: http://www.isnare.com Brandon CornettHome Buying 101: Pre-Qualification Vs. Pre-Approval
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