Finance Roll

The savvy home buyer is the one who shops around for the home loan finance before shopping around for a property to buy. That way, he or she knows exactly how much he or she can (or can not) afford to pay when buying a home. The buyer can then confidently seek out, only properties, within his or her pre-qualified home loan price range.

The only certain way of knowing how much you can borrow is to go through the home loan pre-qualification process. Loan pre-qualification is not difficult, and if you are not a cash buyer, it is an essential part of the whole home buying process.

Home loan pre-qualification starts the ball rolling and is the first step in formally applying for a home loan. It lets the buyer know what is and is not possible.

Pre-qualifying for a home loan also puts the buyer in a much stronger negotiating position with the seller. The fewer sales conditions included in the contract the better.

A loan pre-qualification can also help a real estate agent to better meet the needs of the buyer. 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 home seekers budget. This will save the agent time, and it will save the buyer time, by not having to inspect properties that he or she can not possibly afford to buy.

As I said earlier - The big advantage in pre-qualifying is that it puts the buyer in a much stronger negotiating position.

If the seller gets two similar offers to buy the property, the offer from a fully pre-qualified buyer with most likely get preference over an offer with conditions attached. Most vendors are wary of signing contracts subject to the buyer applying for home loan finance and getting the application approved.

The seller might even accept a lower offer from a pre-qualified buyer, rather than take the chance the other buyer might fail in obtaining the required loan financing.

There are two methods of applying for a pre approved loan. The standard way is to supply a home loan agent with your financial and credit history. The 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 when the borrowers forget to reveal all. They (conveniently) forget to tell about their three overdue credit card payments, their new car payment or they push their income figures beyond reality.

The preferred method is to first complete an application and provide income and employment records. The 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 loan finance.

The message is simple; get a pre-qualified first, then find your dream home. Remember, getting the order right will save you money when negotiating the contract. Having a pre-qualified loan also tells the seller you are serious and really can afford to buy the property. Pre-qualification is a powerful negotiating tool when presenting an offer to purchase.

As an African safari guide once told me, "you do not go tracking a lion, find him and then worry if you have any bullets in your gun!"

By the way - we were not hunting lions to shoot... we just did not want to be eaten alive!

Good luck in your house hunting!