Step #2: Financing

This section explores the world of home buying finance-the good and the bad. It shows you how to jump into the process like a pro and what hurdles to look for and how to scale them. It offers a peek at the pre-approval process and lists the steps needed to apply for the actual loan. The type of loan you select will determine how much you end up paying in the long run. It determines your future. A lender comparison chart will help you sort out the maze of financial terms that will be thrown at you during this whole ordeal. You need to be armed and ready to tackle the financial end of matters. Buying a home is the single largest investment most people make. Learn these action steps and set yourself up for success. The Step #2: Financing section enables you to have a basic knowledge of the financial world so you can make informed decisions and take the necessary first steps to get your first mortgage. The mortgage loan you choose will determine your current and future financial status. Don't be swayed by low introductory rates. Know your terms and learn how to get the best deal.

Pre-qualification versus Preliminary Approval

We Predict You Pre-Qualify

Nearly every first-time buyer has been pre-qualified before they ever see their first house. But what does this mean? It only means that you know approximately how large a loan you can get based on a few answers given to a lender's questions. This is just the first step. You haven't been pre-approved yet. That is where the real work begins. Pre-qualification is unverified. To get pre-approved, a lender will look at your credit report and review your financial data. This is where the fun begins.

Why Bother Getting Pre-Approved? Why Not Wait?

Going through the pre-approval process may seem like you are getting ahead of the game, and you are. You are actually positioning yourself ahead of your competition. This is what may allow you to get your dream house over another family who isn't quite so prepared. Pre-approval gives you buying power with sellers who in some area may be swarmed by prospective homebuyers. It also puts your financing on the fast track so you can close the sale sooner.

In short, getting pre-approved means:

• Getting ahead of your competition
• Increasing your buying power with sellers
• Speeding up your financing for the actual closing

These are all pretty good reasons to go through the process early. But there are other more compelling reasons to plan ahead. Home sales contract offers usually include a grace period to obtain financing. These can be up to 30 days or less depending on the number of other offers. If your loan doesn't come through in that grace period, you lose the house. That is reason enough to gain pre-approval.

Examining Your Records

It all begins with the loan underwriters. They will examine your savings or cash-on-hand, your income and your debt to determine how much you can qualify for. To get a head start on the loan pre-approval process, you'll need to gather some documents. But the biggest part of the puzzle at this point is the credit report.

To continue learning about your credit report, click "Next Lesson" below.

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