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Pre-approved Means Pre-pared

Getting pre-approved for a mortgage should be the first step in buying a house, and it can improve your chances of getting into the house you want. Pre-approval is a simple, but important process, which eases your path to home ownership.

Sellers typically encounter buyers at three levels of preparedness: those who are neither pre-qualified nor pre-approved, those who are pre-qualified, and those who are pre-approved. The first level of buyers (neither pre-qualified, nor pre-approved) have not met with a mortgage broker or spent any time proving that they can afford to purchase a house.

Pre-qualified buyers have met with a mortgage broker and discussed their financial situation. They've told the broker about their assets, liabilities, income, and expenses, and the broker may have examined their credit report. Upon reviewing this information the broker writes a letter indicating what the buyer can afford. The buyer uses this letter when negotiating with a seller, but the letter is only as good as the information provided since mortgage brokers take the buyers' documents at face value and do not verify any of the information.

Buyers that are pre-approved have provided their broker with financial documentation, and their broker has verified that information. This process yields a pre-approval certificate, indicating that the buyer has completed most of the paperwork necessary to get a loan.

Becoming pre-approved for a loan before you begin looking for a home means you know how much money you can borrow, giving you an idea of what types of houses you can afford. This saves you time by eliminating the need to look at houses that are outside of your price range.

Sellers also prefer to deal with buyers who are pre-approved since the buyers are more likely to receive a loan and successfully complete the sale of the house. In a seller's market a pre-approval is all but required. It can give you the edge that makes you a more favorable candidate than a buyer without pre-approval, and get you into the house you want. And in general, buyers that are pre-approved spend less time in closing since most of the paperwork is already finished.

Check with your real estate agent for a suggestion on a reputable broker before you being looking at houses. While the broker will charge you a fee for pre-approval, the certification will ultimately help you achieve home ownership.

Sources used to create this article include www.mortgagefaq.com and www.homeadvisor.com.