Buying a home is always a stressful time and you’re going to want to make sure you have the funds for closing on your dream property.
The best way of making sure your funds are in place to transfer when your house purchase closes is to follow the optimum house purchase procedures. One of the most important of these procedures, with regard to financing, is preapproval.
What exactly is preapproval and why is it important?
Preapproval should not be confused with prequalification. To get prequalified it is often only necessary for you to call or email the home loan company. You provide the details of your overall financial situation, including your earnings and debts. In return the lender will give you an idea of how much you may be able to borrow. It should be noted that there is no check conducted on your credit rating at this stage so there is no guarantee you will receive the loan amount quoted.
On the other hand preapproval is a far more involved process. If you want your money for your house purchase to be available as soon as possible it is always a good idea to get pre-approved. You will need to complete an application form and often you will also need to pay a fee.
The lender will then complete extensive checks on your financial situation in order to give you a more substantive quote on the amount you are able to borrow. Sometimes you will also be told what interest rate you will have to pay; on occasion you are able to lock this rate in.
Now you can buy a house
After you’re preapproved, you then know the price range of homes to look for. And you can do so safe in the knowledge that you’ll have the money in place when the sale goes through. Of course, there’s still the chance that a property check may bring a different set of problems, but at least you know what you can afford based on your personal circumstances.
To ensure that you’ll have your home loan money in time, make sure that your loan commitment date is nearer to the date of closure than it is to the date of offer. The loan commitment date is the day on which the lender recognizes that they have completed all of the necessary checks, including a check on the appraised value of the home you’re buying. You also need to make sure that they’re committed to pay the amount for which you’ve been preapproved.
Remember, it’s important to allow sufficient time for the lender to make all the necessary checks, and confirm your home loan payment. Doing so will ensure that your home loan funds will be available when you need them to cover the purchase price.
Photo Credit: Casey Serin
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