Mortgage Help   Mortgage Rates Real Estate Credit Foreclosure Tax Mortgage Rates   Mortgage Basics Chapter 1: How much house can you afford? Homeownership Should You Buy or Rent Summary   Chapter 2: Adjustable-rate mortgages ARM and a fixed-rate mortgage Fixed-rate mortgages Understanding the key elements Which type of lender is right for you? Other types of mortgages Subprime Summary   Chapter 3: Your credit score Down Payment How lenders set rates Low down payments Mortgage insurance Your mortgage payment Mortgage Points Summary   Chapter 4: The good faith estimate Inspection and Insurance Necessary paperwork for a buyer Other lender paperwork Paperwork and fees Prequalification and preapproval Special circumstances Summary   Chapter 5: Ten questions to ask Turned down for a mortgage Underwriting What lenders ask Summary   Chapter 6:  Understanding the closing process Escrow Summary   Chapter 7: When your mortgage is sold Avoiding foreclosure Paying ahead Payment changes Refinancing Removing mortgage insurance Summary Prequalification and preapproval If you are simply looking to refinance, you won't need to be prequalified or preapproved for a mortgage. But if you are looking to purchase a home, the first thing you need to know is how much you can afford to spend. By becoming prequalified or preapproved for a mortgage, you have a good idea that you are able to obtain a mortgage to purchase a home. Once you are prequalified or preapproved, you can start seriously shopping for a home. Being prequalified or preapproved for a mortgage shows the seller that you already have financing in place. You obtain negotiating leverage and are looked at more favorably by sellers. Plus, you know exactly what you can spend on a house. Prequalification Prequalification is a rough estimate of how you are standing for a mortgage. The mortgage lender will ask you about your credit, income, assets and debts to calculate how much you can afford to borrow for a mortgage. This process takes a short amount of time, and most lenders provide the service for free. The prequalification is not legally binding. The lender is just estimating what you would be able to borrow. It serves as an indication of what you could borrow. Preapproval The preapproval is one step further down the road. This occurs after the lender contacts you employer, your bank and other financial institutions to verify your income, assets, debts and credit. Your credit report and score will be considered at this step. If you are approved, you will be given a letter that says you are approved for a certain amount of money for a certain amount of time. You may need to pay for the cost of your credit report and application, but the cost will usually be refunded or used towards your closing costs. The advantages of being prepared When you are prequalified or preapproved, you are more attractive to sellers and you save time in the closing process. If you are preapproved, you won't have to waste time applying for a mortgage after you find a home. You already applied, you won't have to resubmit your information if you find a home within the lender's preset time frame. But if your financial situation changes, you should contact your lender with the details. Lenders will often recheck your employment and your credit history within a week of closing, so it is best to be upfront about any changes.