Consider a Mortgage Pre-Approval
You've spent a lot of time imagining your dream home. Now imagine this:
You've found the perfect neighborhood, the cutest little house with the greatest backyard, and you think you can even afford it. It has everything you ever wanted. You've spent a couple hundred hours finding your little treasure, you've spent a couple hundred dollars on fees and property inspections, and you have scrunched up your courage to make an offer. Your heart is so set on it that you've even started telling your friends your new address.
And then the bank calls.
Your mortgage application has been denied.
How could you have saved yourself from this heartache? With a pre-approval for a mortgage. In fact, we Fools heartily recommend you get one before you go any further in the home-finding process.
What is pre-approval? It's basically a quick-and-dirty look from a lending institution at your creditworthiness. With a pre-approval or pre-qualification letter in your hand, you're immediately in a stronger negotiating position with any seller.
There are two types of "pre" letters:
- Pre-qualification is an informal agreement between you and your lender. The bank gives its opinion on how much they think they will be able to lend to you based on information that you have provided to them. Your bank doesn't do any background checks at this point. It relies solely on you portraying an accurate picture of your circumstances. Because this is more like a friendly handshake, the lender can decide not to give you the loan if they find out later that you have been less than candid with them. There is no charge to do this and you are under no obligation to get a mortgage with this lender if you find a better deal later.
- Pre-approval is more serious. The bank will actually check your credit history, employment information, assets, and liabilities. The only thing they won't check is the property that you plan to buy, because, of course, you haven't found it yet! If you're concerned that you might not qualify for a mortgage, we highly recommend that you go for pre-approval. It will put your mind at ease while you search for your new home and make the entire experience much less worrisome. Some lenders charge for a pre-approval. If you decide to go with one who charges for this service, make sure you're really going to buy a house soon or you'll just be throwing money away.