Learn why home loan pre-approval is one of the smartest moves you can make when shopping for a house.
You wouldn't head to a cash-only farmer's market or craft fair without knowing how much cash you had in your wallet. So why would you start shopping for the biggest purchase of your life, a new home, without knowing how much you could spend?
Fortunately, knowing how much you can spend is easy: Get pre-approved for a mortgage before you start any serious home-shopping.
Here's why getting your loan pre-approved is so important:
Don't confuse loan pre-approval with pre-qualifying for a loan. Lenders will often pre-qualify a would-be buyer based on what you tell them about your income, employment and basic credit information, like how much you currently owe on credit cards or other loans. The lender is not agreeing to loan you money or committing to an interest rate. But the process can tell you whether it makes sense to move forward in your home search.
Loan pre-approval is a more formal process. You'll need to provide the lender a lot of information about yourself, especially about your spending and saving habits. Prospective lenders will generally make inquiries into your credit history and obtain your credit score.
If you get pre-approved, you'll receive a letter telling you the maximum loan you can get and the interest rate you'll qualify for. In some cases, you can lock the interest rate in. Be sure you understand whether the interest rate is locked and when you can lock it when you get the pre-approval.
That pre-approval letter gives you a lot of power as a home buyer. Use it wisely.
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