Before you start your house hunting in earnest, the real estate professional with whom you are working likely will "pre-qualify" you to determine the price range you can afford. According to Robert Alvarez, ABRŪ, pre-qualification is a necessary part of the home buying process that helps save you time and money.

Alvarez, an accredited member of the Real Estate BUYERS AGENT Council (REBAC) and bearer of the Accredited Buyer Representative, ABRŪ, designation, suggests that determining your financial status isn't a way of qualifying you to the agent, but to the financial institution who allow you to purchase the home. "Don't be shy or withhold information about your income or credit status. Your real estate professional isn't trying to pry," he says, "Rather, he or she must know all details related to your ability to obtain a mortgage."

"By candidly discussing your financial situation, you'll give the agent the information necessary to show you homes you can afford," explains Alvarez. "If you don't open up, you are placing the real estate professional in the role of a tour guide, not someone who can help you find a home within your budget. You'll wind up wasting your time, the agent's time and that of the seller"

Many agents routinely suggest obtaining a pre-qualification letter from an institution in order to strengthen your position when it comes time to negotiate a home. A homeowner who is considering more than one offer will regard more seriously the one which has been pre-qualified by a lender.

Depending on your credit situation, your agent may suggest one of two routes for you to go, either through a mortgage broker to direct lender. If you think clouds may exist on your record such as slow payment of credit cards, outstanding judgments, or lack of established credit, the agent may suggest that you get pre-qualified with a mortgage broker rather than a direct lender. The difference is that the broker will pre-qualify you based on a wide range of lenders and their criteria. If you are turned down by one lender, the broker will go to the next lender at no additional cost to you until he or she finds a lender who will give you a loan. If you go to a direct lender (the bank or lending institution itself), you may risk being turned down, and any money you have put toward pre-qualification efforts, such as the credit report fee, will be forfeited.

A mortgage broker, by profession, purchases loans at a discount rate from a wide range of lenders, and will be able to get you qualified with one of those lenders. When you use the services of a mortgage broker, understand that you are paying for the convenience of having the broker search for the best loan possible for you and your unique situation - and that service isn't free. You will pay for it with increased fees on such items as the credit report, appraisal, and other lender associated fees by as much as double or more. For example, a credit report fee from a direct lender such as Home Savings of America can be as little as $15 and as much as $40-$75 with a mortgage broker.

When you go to a direct lender, you will be offered the best loan package that the institution offers for your needs, with less closing costs than the mortgage broker, but you may pay a higher interest rate over the life of the loan. With a mortgage broker, you will pay the fees up front at closing, and with the lender the fees are rolled into the interest rate over the life of the loan.

Remember, the credit report is the major hurdle. Credit reporting agencies compile credit reports on consumers, including bill payment history, as well as whether you have been sued or filed for bankruptcy among other information. Federal credit reporting laws do not give you the right to inspect the actual credit report at the reporting agency or to receive an exact duplicate of the report. But, you are entitled to a summary containing the sources of the report's information. If your ability to obtain a mortgage is adversely affected by the credit report, you have the right to challenge its accuracy and seek corrections.

Once you have cleared the credit hurdle, you will have a pre-qualification letter to show to home sellers when you search for a home. When you have signed a contract to purchase a home, you must choose a lending institution or mortgage company from which to obtain your home loan. Your loan application will request financial data including your place of employment, assets, and liabilities (including recurring debts such as credit card bills and car payments).

Alvarez has two important suggestions for the borrower:

• Do not borrow the down payment without disclosing the loan, submit fake letters-of-credit or gift letters, or make secret financial arrangements.
• Accurately list your income and assets, all debts and the approximate amounts you owe.

If you choose to stay with whomever pre-qualified you, either the broker or lender, you can actually speed up the closing time and get into your new home more quickly if you don't take time to look any further for a lender.

"Remember, the credit report is part of the information the lender uses to determine if you qualify for a loan. It is not a mechanism to prevent you from buying. Lenders want to make loans, not turn them down," concludes Alvarez.