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Mortgages, pre-qualifying and pre-approvalYou should check your credit before setting out to shop for your home. By now you should have a good idea of how much house you can afford. If you plan on taking out a mortgage on your home, get a copy of your credit report and clear up any problems that may appear. Even if you have sterling track record and always pay your bills on time, credit reports may contain mistakes. If you find any mistakes, contact the credit reporting agency to get them corrected. You should also contact other major credit reporting agencies, who may have the same mistake in their records. If you have a lot of debt, work on paying it down. A little penny-pinching now can save you a lot of aggravation later, when you go to apply for your mortgage. After ensuring the integrity and accuracy of your credit report, it's time to begin calling lenders. You can finance a home through a bank or savings and loan, a private mortgage company, through several state and federal programs, and possibly through other sources. Your real estate agent can give you information about any home-buying programs that may be available, and can refer you to reputable lenders. Ask the lenders you call about the types of mortgages they offer and if they have any special programs that you might qualify for. Do some research on current mortgage interest rates in the area. Many lenders will give you a pre-approval quarantee even before you have your new house picked out. The pre-approval will be contingent upon the house qualifying for the loan, but will make it much easier for you when shopping for your house, because you'll know exactly how much house you can afford. Pre-approval will also speed things up once you make an offer on a house. Be sure you get a pre-approval certification from your lender, not just a pre-qualification, which is an informal estimate of what you may qualify for. Pre-approval represents a lender's commitment to lend up to a specified amount to you, assuming that the house meets the lender's financing criteria and that you experience no substantial financial changes between the pre-approval and the actual loan. You'll want to inquire about all costs associated with the mortgage, not just the interest rate. Ask about points, origination fees, late payment fees, early payment penalties, escrow requirements, underwriting fees, and processing fees.. Be sure to ask if you can "lock in" the interest rate that's in effect at the time of your application, or at any time until the closing takes place. Your lender will ask many questions about your financial situation, and will request many supporting documents to verify the accuracy of your statements. Don't take any of it personally; the lender needs all that information to be able to determine the maximum loan amount that you qualify for. Gather all the documentation requested and submit it to the lender as promptly as possible. The lender will then look at your credit record, your verified income, the stability of your income, your debt-to-income ratio, and many other factors, and will eventually come up with the magic number: the loan amount that you can qualify for to buy your new home.
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