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Learn the difference between "pre-qualified" and "pre-approved. Identify additional fees and prepayment penalties. Negotiate where you can. Analyze lenders' posted offerings. Select a lender.
" When applying for a mortgage, some lenders may offer to pre-qualify or pre-approve you for a mortgage. It's important that you understand the distinction between the two and what they mean for your chances of purchasing a home. Pre-qualification can help you understand how much you can afford and can serve as an aid when choosing which houses to consider. Ultimately, however, pre-qualification adds little else to the process. Being pre-approved, on the other hand, can demonstrate to all concerned that you are serious about purchasing a home and add weight to your offer. Being pre-qualified means a lender discussed your financial situation, credit and income and determined that you are qualified for a mortgage level indicated in the letter of qualification. Being pre-approved means the lender actually examined your credit and confirmed your financial information. A pre-approval is the more significant of the two steps, because it is supported by documented evidence. Being pre-qualified is no guarantee that you will be approved for a mortgage. Being pre-approved is also not a guarantee but is generally seen as indicating a high likelihood that the applicant will be approved. There are a number of possible fees associated with mortgage lending, so it's important that you discuss them with a lender before applying for a mortgage. Be sure you have a thorough understanding of the fees and additional expenses you will be expected to cover as a part of the mortgage process with each lender. Ask for a written estimate of your costs that includes a breakdown of all associated expenses and fees. Ask questions about any fees that you don't completely understand. It is your money. Don't be shy about asking. Lenders may also charge "points" on your mortgage. A point is equal to 1 percent of the mortgage loan amount. In contrast, "discount" points might be offered, which is an opportunity to reduce the interest paid on the loan by prepaying it in the form of points. A lender might charge "origination fee points," which is a vague but profit-boosting fee added to the cost of your loan. The different costs associated with purchasing a home are divided into two categories: real and negotiable costs. "Real" costs are non-negotiable and cannot be adjusted, while you may be able to negotiate the remaining costs. Understanding the differences between the two can help you approach the discussion well equipped to limit any additional expenses attached to the home-buying process. Examples of real costs are: expenses associated with obtaining your credit reports, inspecting the house and the appraisal of the property. Negotiable costs include the commission the lender charges you for their work. Lenders usually receive a commission of between 1% and 2% of the price of the house, but a commission of up 4% is not unheard of. This cost is completely negotiable, however. It's best to discuss this commission with the lender well before the day that escrow closes. The best way to get a good mortgage rate is to present a good credit history. In addition, you will want to do some homework to find the best rate(s) available. Your interest rate determines how much interest you will pay over the life of the loan. A lower interest rate will reduce your monthly payments and the total amount you pay for the house. Compare the interest rates offered by several lenders, and consider any special programs you may be qualified for. You can track current mortgage rates online from different lenders in your area on websites like BankRate.com. To look at current rates, go to http://www.bankrate.com/funnel/mortgages/ Get your paperwork to the lender as soon as possible when you find a rate you like. Rates can change overnight. Check with your bank or credit union about any incentives or special mortgage programs they offer existing customers. After researching your lending options and making sure all of your questions are answered, compare the lenders you haven't eliminated, and choose the one that seems right for you. You should feel comfortable working with the lender you choose, and you should be confident that they can help you navigate the mortgage process. Remember that mortgages can last for decades, so it's important to choose a lender you can work with. The lender you choose should be willing to provide you with advice on how to improve your credit and get approved through the application process.