Step 5: Why It's Smart to Get Pre-approved

You can use estimates and online calculators to help you figure out how much you can afford to borrow. You can also have a lender pre-qualify you. But none of these methods is as powerful as getting pre-approved for a mortgage. That's because they don't involve a lender actually verifying your financial information. A pre-approval makes sense from a lender's point of view, but does it benefit you? Yes! Here's how:

• You will know how much home you can afford. You'll be able to focus on the homes you like that fit within your price range, which eliminates guesswork and saves you time.
• You can compete successfully with other buyers. Sellers want the most money for their home, but they also want buyers who have financing that won't fall through.
• It shows a real estate agent you're a serious buyer. Real estate agents earn commissions only when sales are successfully completed. No agent wants to do all the work required to purchase a home only to have the deal fall through because the buyer could not get financing.
• You can negotiate with confidence. When you know your borrowing power, you can negotiate your best price with confidence. If another buyer makes a higher offer, you'll know if you can beat the offer.

What's Involved?
As part of the pre-approval process, your lender will look at your credit report and verify information you provided about your employment, income, liabilities, and cash available for the down payment and other fees. The pre-approval process is fast and easy and often requires no cost.

To pre-approve you for a loan you'll lender will need:

• Information about your income, assets, and debts
• The type of loan you want
• The amount of down payment you plan to make (if any)
• Your employment history
• Name(s) and financial information on any co-borrower(s)
• If you have a home in mind, the type of home and its selling price
  

Pre-approval vs. Pre-Qualification

A pre-approval and a pre-qualification are not the same thing. In the informal pre-qualification process, you give a lender a list of your assets and liabilities. He or she then lets you know if you might qualify for a loan and lets you know how much you can probably borrow. You may even get a pre-qualification letter. But you don't have an assurance that you will get the loan.

When you are ready to enter the home buying market, you should get pre-approved even before you start looking for a home. The lender will check and confirm your financial information, let you know how much you can borrow, and provide you with a pre-approval letter.