Determine Your Financial Ability and Comfort Level
| Pre-qualification vs. Pre-approval
Typically you will first pre-qualify for a mortgage, then get pre-approved before you have found the specific home you wish to purchase. What is the difference? Pre-qualification: An informal determination by a lender or mortgage broker stating the amount of the mortgage you can afford. Pre-approval: A commitment letter in writing by a lender to grant you a mortgage up to a specified amount. |
Why is a Locked-In Rate Important?
When your mortgage is approved, the interest rate is "locked in", or guaranteed, for a specific period of time. For example, a 90-day rate guarantee means that the mortgage application process must be completed and the mortgage signed with the closing date of the purchase within that lock-in period or the rate guarantee expires. The rate after that time could be higher, increasing your mortgage payment. |
There are two advantages of being pre-approved for a mortgage as early as possible in your home-buying process:
- Sellers will find any offer you make more attractive if you are pre-approved for a mortgage.
- The length of time to firm up on a property can be shorter if you've completed the steps to secure mortgage approval prior to signing a contract on a property.
*Source: the Real Estate Buyer's Agent Council (REBAC), The Homebuyer's Toolkit is published by REBAC, a subsidiary of the National Association of REALTORS (NAR), and the organization that awards the Accredited Buyer's Representation (ABR) professional designation. This Toolkit is available as a service to help educate homebuyers because knowledge and information are the best tools for a successful home-buying experience.