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Mortgage Applications and Pre-Approval

May 2, 2012

Mortgage Applications and Pre-Approval

Since 2006, we have published hundreds of pages of advice for first-time home buyers. But we always seem to come back to certain key concepts. Pre-approval is one of those concepts. It’s a crucial step in the home-buying process, and you will soon understand why.

Mortgage-application tips for first-time home buyers:

Get pre-approved for a mortgage loan. If you start shopping for a home before you’ve been prea-pproved by a lender, you are putting the cart ahead of the horse. You need to start by finding out how much money you can borrow. And you can do this by getting pre-approved. Every first-time home buyer in 2012 can benefit from the pre-approval process. It will help you identify any qualification problems you have (such as a low credit score), and it also helps you establish parameters for your housing search.

You can learn more about it here.

Real estate agents won’t take you seriously until you get pre-approved by lender. Put yourself in their shoes and you’ll understand why. They don’t want to spend a lot of their time working with a buyer who might not even be qualified for financing. Would you?

The same goes for sellers.

They will take you more seriously if you’ve been pre-approved for a mortgage loan. A pre-approval letter tells the seller that you have been screened by a mortgage lender and will likely receive financing. Obviously, this is something the seller wants to know.

You should understand the differences between pre-qualification and pre-approval. I recommend that first-time home buyers skip the first option and go straight to pre-approval. Pre-qualification is when the lender takes a quick look at your finances to determine if you’re qualified for a loan. It is not nearly as useful as the pre-approval process. Pre-qualification is basically a lead-generation tool for mortgage lenders. They use it to attract potential borrowers. It doesn’t serve much purpose beyond that.

Don’t apply for a home loan until you have a budget on paper. We talked about the importance of a housing budget in the previous section of first-time home buyer tips. You need to have a maximum monthly budget in mind before you apply for a home loan.

Here’s why…

Believe it or not, it’s possible to be over-approved for a mortgage loan. This is when the lender approves you for an amount that stretches your budget to the limit. You’ve probably heard the term “house poor” before. This is when your monthly mortgage payment uses up so much of your income that you have little to no money left over. Nobody wants to be in this position.

Get offers from several lenders.

First-time home buyers often go with the first lender they speak to. This limits your ability to spot the best deal. How do you know if you’re getting the best terms if you only have one offer? If you get offers from two or three lenders, you’ll have an easier time spotting the best deal.

First-time home buyers need to understand that pre-approval does not guarantee financing. It is a conditional form of approval that can be taken away just as easily as it was given. Pre-approval is helpful, and I highly recommend that you go through the process. But you must realize that it’s not a commitment to lend. We will talk about some of the things that can go wrong between pre-approval and final approval later in this tutorial.

When shopping for the best mortgage deal, consider small banks, local lenders and credit unions. Don’t limit yourself to the “big 3″ mortgage lenders (Bank of America, Wells Fargo, JPMorgan). We have heard numerous stories from first-time home buyers who were turned down by a major lender, but later approved by a smaller bank — and vice versa. So don’t limit yourself to the larger lenders. Get quotes from a range of different banks and mortgage companies.


Read more:


First, complete a loan application on our website
-Go to
-Click on Apply Now at the top
-Scroll to the middle of the page and Click on 3. Full Application

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