By Diana Clement, MSN Money expert
If you're on the hunt for your first home, take the time to ask your bank or lender for pre-approval. A pre-approved loan gives you an indication of how much you can borrow. It's the green light to go ahead and start shopping for a property.
It also means that you're in a good position to make unconditional offers on properties and to buy at auction, where all bids are considered unconditional.
Having pre-approval really does increase your bargaining and negotiating power. It also stops you from living in a dream world thinking you can spend way more than you really can afford.
The pre-approval usually lasts for a set time, such as four or six months.
There are some real fishhooks when it comes to buying your first, or any home. One of them is going unconditional on a property without having your finances in place. Imagine if you'd signed the deal and then found that you didn't have the money to pay.
This can and does happen to people and they lose tens or hundreds of thousands of dollars in deposits. Usually they've signed contracts without reading the fine print or showing them to their solicitor. Or they've simply made the assumption that the bank will lend, and it didn't. It's all the more reason to get pre-approval.
Beware, however, that pre-approval usually has conditions attached. If, for example, you change jobs during the pre-approval period you might not be able to get the loan you expected.
There might also be conditions placed by the bank or lender on the type of property you can buy. If, for example, the pre-approval is for a standalone house and you decide to buy an apartment, you might not get the loan you expect.
If the interest rate changes in the meantime, so too might the amount the bank is willing to lend.
Pre-approval is just an indication. So keep in good contact with your bank or lender before you sign on the dotted line of the sale and purchase agreement.