Before you start house hunting, you need to determine how much house you can afford, which will entail getting preapproved for a home loan. A real estate agent can help you find a mortgage broker to begin the process. While getting preapproved is a more in-depth process, a preapproval letter lets both real estate agents and sellers know that you’re a serious shopper who means business.
What do I do to get preapproved?
Getting preapproved requires that the lender review your finances, confirming pay stubs, tax records, credit accounts, bank statements and sometimes more. The preapproval amount will not only be a reliable estimate of what you can afford, but your preapproval also indicates that a lender is willing to do business with you, pending the purchase price, market appraisal and the underwriting process.
You can also get prequalified for a loan, which means that a lender has taken some information from you, and made a tentative decision without necessarily verifying any the information. Prequalification provides you with a quick estimate of the amount you can afford, but is not considered as reliable as preapproval.
What should I ask when shopping for a lender?
Your real estate agent should have a mortgage broker they are willing to put you in contact with — this lender will be someone they have done business with in the past, and feel comfortable recommending. However, if you decide to do a little comparison shopping and look for a lender on your own, here are a few important questions to ask.
- What loan programs do you offer and which one do you think is best for me?
- How long will the loan approval process take?
- What line items of the loan agreement — if any — are negotiable?
- What is your policy for locking in interest rates, and will you honor a lower rate if it declines during the lock-in period?
- Are there fees for prepaying on my loan?