often only at this point, that the home seeker begins to shop
for a home loan. All too frequently, the bank or lending institution
declines the home loan application. For one reason or another
the property falls outside the lending criteria and is deemed
to cost more than the buyer can afford. The buyer therefore
loses the chance to buy the dream home they searched so hard
to find. The deal falls through simply because the buyer couldn't
obtain a home loan and finance the purchase. The buyer is
frustrated, the seller is frustrated and so is the inexperienced
agent who chauffeured the buyer around for all those months.
Hunt the home loan
finance before the searching for the home.
The savvy home
buyer is the one who shops around for the home loan finance
first. That way, he or she knows exactly how much he or she
can (or can't) afford. The home buyer can then confidently
seek out only properties that are within his or her prequalified
home loan price range.
The only sure way
of knowing how much you can borrow is to go through the home
loan prequalification process. Home loan prequalification
is not difficult, and if you are not a cash buyer,it is an
essential part of the whole home buying process.
Home loan prequalification
sets the wheels in motion and is the first step in formally
applying for a home loan. It lets the home buyer know what
is and isn't possible.
A home loan prequalification
can also help a real estate agent to better meet the buyers
needs. A real estate agent can waste a lot of time searching
for properties that are out of the home buyers financial reach.
By knowing what the financial boundaries are, a real estate
agent can concentrate on finding properties that fit within
the budget. This will save the real estate agent time and
it will save the buyer time by not having to inspect properties
that he or she can't possibly afford to buy.
The big advantage
in prequalifying for a home loan is that it puts the buyer
in a much stronger negotiating position. The fewer conditions
of sale that are included in the contract the better.
If the seller gets
two similar offers to buy the property, he or she is likely
to select the one that is from a fully prequalified buyer
as opposed to one that is subject to the buyer applying for
home loan finance. The seller might even accept a lower offer
from a prequalified buyer rather than take the chance the
other buyer can't obtain a home loan finance. The seller is
likely to take a home buyer with a secured a home loan commitment
far more seriously, than they will a buyer who may need to
have a home loan approved.
There are two methods
of applying for a pre approved home loan. The standard way
is to supply a home loan agent with your financial and credit
history. The home loan agent will then "crunch the numbers"
and "run the ratios" to calculate the level of borrowing
that can be approved. A major flaw in this scenario is that
the borrowers often forget to reveal all. They (conveniently)
forget to tell about their 4 overdue credit card payments,
their new car payment or they push their income figures beyond
The preferred method
is to first complete an application and provide income and
employment records. The home loan agent would then run a credit
report and actually submit the file to a wholesale lender
for underwriting before receiving approval and commitment
for home loan finance.
The message is
simple; get a home loan commitment first, then find your dream
home. Getting the order right will save you money when negotiating
the contract. Having a prequalified home loan also indicates
to the seller that you are serious and really can afford to
buy the property. It is a powerful negotiating tool when presenting
an offer to purchase.
As an African safari
guide once told me, "you don't go tracking a lion, find
him and then worry if you have any bullets in your gun!"
By the way - we
weren't hunting lions to shoot... we just didn't want to be
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