This is a very common scenario: Juan thinks he likes the house shown to him by the real estate broker. On impulse, he pays for a reservation fee to hold the property in his favour without even considering how much he has to cover for the down payment. A few days later thinks about mortgage financing.
Can you spot what’s wrong with Juan’s approach to buying?
Most likely than not, this will eventually lead him to losing his reservation fee… down the drain. Poor Juan, he never even knew what he is getting into.
Of course, Juan is not alone. I’ve seen many, many cases like this happen over and over again. I don’t know if it is the excitement of buying a house or just plain ignorance that caused them to be trapped into the deal.
For most of us, real estate is one of the most expensive investments we can make. That is why, many properties are bought in instalments, usually using mortgage loans with a little down payment.
Before you buy a piece of real estate, it helps if know the following:
- The Amount of Down Payment you can comfortably shell out.
- The Loan Amount you can comfortably shoulder.
Of the two, the second one is far more important because a mortgage loan entails a longer payment period and will probably take toll on your household budget.
The Loan Pre-Qualification Process
Pre-Qualification is an assessment process used to determine how much loan you can get. It can be either informal or formal.
An Informal Pre-Qualification can be done by you or by any real estate agent. This is a really quick-and-dirty method of determining how much you can afford based on the following factors:
- Your income
- Outstanding Debt
Since the person doing an informal pre-qualification is not really committed in giving you the loan, what usually happens is the whole process becomes simply an exercise in fantasy. That is, you could bloat your income or lower down your current debt. An ball park figure might come out giving you an idea of how much loan you can afford or you might be granted.
On the other hand, if you are really serious in buying a property, you should get a Formal Pre-Qualification. This process takes a little longer. At the very least, it involves the following:
- Going to the office of a lending institution (Bank, Pag-IBIG)
- Having you sign a Loan Application Form
- You lay down your financial life on paper (your income, other assets, liabilities, outstanding loans, etc)
- You may be asked some personal questions
- Submitting some form of income documents
- Checking On your Credit History
No Guarantee Of Getting A Loan
Take note that getting pre-qualified is not a guarantee that the lending institution will also grant you the loan that you can possibly afford. That involves an entirely different set of assessments.
The fact of the matter is you can pre-qualify yourself if you know the parameters used by the lender in the pre-qualification process.
The advantage of getting a formal pre-qualification is once you apply for a loan, the processing time will be a bit shorter since some preliminary steps have already been done in evaluating you as a loan applicant. The trick is to apply for a loan immediately as soon as you got pre-qualified. If you delay it, then you have to undergo another set of evaluations and a new set of fresh documents will be asked of you.
This article on Loan Pre-Qualification is written by Carlos Velasco.