Free Nolo's Essential Guide to Buying Your First Home by Ilona Bray, Alayna Schroeder, Marcia Stewart Page B

options for borrowing money, from your family to the seller of the house you buy. For details, see Chapter 7.
    • Get a buying partner. Perhaps you know someone who has cash and would be interested in jointly owning a property. Keep in mind that owning together doesn’t have to mean living together, or even owning equal shares.
    • Cash out other investments. Consider cashing out money invested in stocks, bonds, mutual funds, or other property to come up with a down payment, thus also reducing your monthly payment.
    • Consider other home types, sizes, conditions, or locations. Remember that condominiums are often cheaper than houses and old houses generally cheaper than new.
    • Wait. If you expect prices and interest rates to remain stable, your income to increase, and to save more money, you might delay your house purchase. With increased income, you may be able to borrow more; with an increased down payment, you may not need more.
     

The Power of Paper: Getting Preapproved for a Loan
     
    Knowing what house-related costs will be laid at your feet, roughly how much a lender will let you borrow, and how much you’ll really want to spend based on your income, lifestyle, and other factors, you can think about getting preapproved for a loan. Preapproval means you get a letter from a bank or lender committing to lend you a certain amount. It’s often expressed as a monthly amount, because interest rates may vary, but the amount you can afford to pay each month does not.
    Preapproval does two important things: It gives you some certainty that you can afford the houses you’re considering, and it makes you more attractive to sellers. You’ll know exactly how much you can borrow, and sellers will know that if you’ve put an offer on their place, you can actually come through with the cash.
     
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    You don’t need to use the lender that preapproves you. It would make matters easier if you did, but there’s no need to feel bound. You (or your mortgage broker) might find a better deal by the time you’ve chosen a house.
     

Why Preapproval Is Better Than Prequalification
     
    You may have heard of loan prequalification , but don’t get it confused with preapproval. When you get prequalified, you give a lender some basic information about your income and debts, and the lender estimates what you’ll likely be able to borrow. But the lender doesn’t commit to lending you that money, so prequalification mainly helps you ballpark the price range you should be looking at and readjust your expectations if need be. Prequalification certainly won’t wow any sellers. On the plus side, prequalification is free and easy to do (in person, over the phone, or on the Internet).
    Preapproval is a different story. It will actually cost you a little money (in the $30-$40 range), because the lender will check your credit history. (This cost may be negotiable.) But preapproval will also give you more—a written commitment to lend you money. Don’t accept a verbal preapproval.
    Of course, the lender will attach a few conditions to that commitment. If, for example, you lose your job, the bargain is off. And make sure your preapproval letter doesn’t contain too many conditions. For example, if the letter conditions the loan on a credit check, it means the lender hasn’t really done its homework, and you’re not really preapproved.

What You Need to Show for Preapproval
     
    To get preapproved, you’ll need to provide the lender with some financial data. This is actually a blessing in disguise—it’s all stuff you’ll need to dig up to get a loan anyway, and it’s about the last thing you’ll want to be thinking about later, when you’ve found a place to buy and are juggling other tasks.
    Here’s what you’ll need to pull together and photocopy. If you’re buying with someone else, both of you will need to give the lender every item on the list.
    • pay stubs for the last 30 days
    • two years’ tax returns and