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Step 2: Preapproval vs. Prequalification
Now that you have the list of features you want in your new home, you are ready to start looking! Well, not just yet.
What is the price range of the home which you are looking for? There are two ways to go about this. You can be prequalified or preapproved for a mortgage. Regardless of which you choose you will need to contact a mortgage company. Go to our partner's finance section (Advantage Mortgage) to investigate options with Advantage Mortgage.
There are some key differences between prequalification and preapproval for a loan.
Loan prequalification is a simple process, and in most markets holds little clout compared to preapproval. It takes into account very basic information regarding your financial status and gives you an amount for which you may qualify. This can be done strictly on a verbal level or electronically over the Internet. The prequalified amount is based so! lely on the information you provide, which is not thoroughly investigated, and therefore may be unreliable. A prequalified buyer is only told that they might be approved for a certain amount.
Preapproval is a much more involved process. The lender will take all pertinent information regarding your finances and perform an extensive check on your current financial status. This will ultimately give you the exact amount for which you will be eligible (depending on what type of loan you choose). Being preapproved lets the seller know that you have gone through an extensive financial background check, and there should be no unexpected obstacles to buying the home. You can see how being preapproved would be more attractive to a home seller than just being prequalified.
The type of mortgage will depend on many factors, but most of that decision will be based on your ability to pay a monthly installment. If you can afford a $1000 dollar a month payment, you probably wou! ld not want to buy a $250,000 home (unless you have a large sum of money set aside to make a sizable down payment). Financial planners (Like to HUD) believe that you should not pay more than 28% of your gross income for housing (that includes principal, interest, taxes, insurance, and premium mortgage insurance if required). Your monthly debt payment also should not exceed 36% of your total monthly gross income.
Once you have determined what you can afford, the next step is to choose a mortgage. There are many different mortgages to choose. The Somerset Alliance, L.L.C. will be able to counsel you on the advantages and disadvantages of certain types of loans. Advantage Mortgage, our preferred partner, will help you understand the "real" cost of a mortgage. Making the right choice could save you thousands of dollars in the long run!
The Somerset Alliance L.L.C. will also act as your personal advocate and liaison between you and the lender as you proceed throug! h the approval process and closing. When required, we will work with your lender on a regular basis.Go to Next Step > |
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