Before looking for a house or home loans, you should look into being pre-qualified or pre-approved by a lender. Being pre-qualified or pre-approved will give you a good idea of how much money banks will offer you when you apply for home loans. But don't be fooled. Even though the two terms pre-qualified and pre-approved seem interchangeable, they are two different things. Pre-Qualification
Being pre-qualified is like having a dental checkup over the phone. The dentist can't see your mouth and can only rely on what you say. As a result the dentist may be drastically wrong about your actual condition. The same goes for pre-qualification. The lender never sees your actual financial situation or credit report. They simply listen to what you tell them, which is normally the amount of your income,
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long-term debts and money your were planning on putting toward your down payment, and after hearing the figures you give, the lender makes a rough estimate of the amount of money you are likely to get when you apply for home loans ("100 Questions and Answers About Buying a New Home"). However, be forewarned. The amount of money they pre-qualify you for is not guaranteed. When you actually do apply for home loans, you may be shocked to find that your offers are lower than the estimate you were given ("100 Questions and Answers About Buying a New Home").
If you are browsing for a home and not yet serious about buying, being pre-qualified is a good idea for you. Because being pre-qualified is free, it will give you an idea of how much money you can expect. Knowing that number will let you know if you want to wait and save more money or start getting serious about looking for a new home. Pre-Approval
Being pre-approved is a guarantee. The lender, after a thorough investigation of your financial records, promises that they will lend you a certain amount of money ("100 Questions and Answers About Buying a New Home"). Once you are given that letter of pre-approval, sellers become much more interested in working with you (Opdyke 44). They know you have the money to buy, so they will be more inclined to hear your offer. That is especially helpful when you want a home that many other people have bid on (Vega). Having that letter of pre-approval will make you stand out among the other bids.
If you are serious about buying a home, being pre-approved is a good idea. You will not waste time looking at homes you cannot afford or worrying about qualifying for a loan. Instead, you will be able to spend more time focusing on which home you want to buy. Some lenders may charge you to be pre-approved. So look around before choosing which lender you want to pre-approve you.
Once you have been pre-qualified or pre-approved, it's time to start thinking about what type of home loan is right for you. To read the next step of our Home Loans Guide, go to Step 3: Choosing a Type of Mortgage
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