AFFORDABILITY...
An important first question.
Pre-qualification and Pre-Approval for a home loan
This is an important first question, and pre-qualifying for a loan is the easiest way to establish how much house you can afford.
Prequalification is a free service that lenders -- mortgage brokers, mortgage bankers and credit unions -- offer as a way to build up their customer base. Local lenders can supply the service, or it is available on line (see Affordability Calculator link). Most ask for the following information:
- Present yearly income from all sources
- Monthly house payment or rent
- Monthly payments for loan installments and credit cards
- Other financial obligations
- Savings for a downpayment on a home
The numbers are fed into a formula, and the resulting figure is the price of the house you can afford. A thorough assessment of prequalification can take up to one day. There is no commitment from the lender who completed the pre-qualification to lend that figure. It is only intended as a rough guide for starting the search for the right house.
Pre-approval is the next step. The lender makes a much more detailed and thorough assessment of the applicant's assets, liabilities and creditworthiness. The process can take some 30 days. The end result is a written commitment from the lender for a loan of a certain amount. A buyer with pre-approval in hand is in a good bargaining position once the right house is found because the seller knows that the sale is less likely to fall through because of financing problems.
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