using www.annualcreditreport.com to  

be sure there are no potential credit  

problems that might make it harder for  

a lender to approve your application.  

If you find a major error that could hurt 

your creditworthiness, try to have it 

resolved by following the directions on  

the credit reporting agency website. 

Then shop around for the lowest 

annual percentage rate (APR) being 

offered for loan term you want. If you 

already have an account with a potential 

lender, you’ll want to start there, asking if 

you would be eligible for a preferred rate.

ASKING FIRST

The customary approach to applying for 

a mortgage is to wait until you find the 

home you want to buy and then look for 

a lender. But you may want to investigate 

preapproval. This means you apply for 

a mortgage loan before you have chosen 

a property. The lender will let you know 

whether or not you’re approved and how 

much you’ll be able to borrow.

Preapproval is often a good idea since 

you can shop with more confidence when 

you know how much you can afford to 

spend. Preapproval can also make you  

a more attractive  

buyer, as 

the seller 

can be 

confident 

that you 

can get a loan. But there are fees involved, 

as there are with any loan application, 

so you don’t want to take this step until 

you’re serious about buying.

Another approach is to seek 

pre- 

qualification. In this case, a mortgage 

lender confirms that you will probably be 

approved and for how much but does not 

make a commitment to lend. 

commute. The catch is that good schools 

and good transportation don’t necessarily 

go hand-in-hand.

In the final analysis, flexibility is key to 

finding a home that meets your financial 

and personal needs. So is waiting for the 

right opportunity. 

THE BUYING PROCESS

Most homebuyers pay part of a home’s pur-

chase price, called the 

down payment,  

in cash, and use a 

mortgage loan from  

a bank, credit union, mortgage banker,  

or other lender to close, or finalize,  

the purchase.

At least six months before you  

expect to apply for a mortgage loan,  

you should check your 

credit report  

(your $100,000 divided by the $300,000 

value) would increase to 50% (your 

$100,000 plus the $100,000 divided by 

$400,000). That is, you’d owe around 

$200,000 on a home worth $400,000.

But, if the home’s market value 

decreased to $250,000, your equity  

would shrink to 20% if you still owed 

$200,000. And the value dropped below 

$200,000, as it could in a serious market 

downturn, your equity would drop to  

0% and you would actually owe more 

than the home was worth. That’s known 

as being underwater.

While real estate values don’t change 

overnight, you don’t pay off a loan’s  

principal that quickly either. In fact, it 

takes more than 20 years of a 30-year  

loan to pay off even half the principal. 

The prospect of price changes in 

the housing market shouldn’t drive you 

away from buying. The changes often 

work in your favor. But the potential  

for a loss in value is worth considering.

HOME FINANCE

HOME FINANCE

HOME FINANCE

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