For most people, buying a home is one of the biggest financial transaction they'll make in a lifetime. Before diving in, it's important to get pre-approved and to understand the basics to avoid unpleasant surprises or delays. Knowing the interest rate, the down payment required, the closing costs and the purchase price is key to be able to have a clear idea of what is possible and to plan accordingly:

• Pre-approval process.

What is a pre-approval letter? A pre-approval letter is a document provided by a lender stating that the lender is tentatively willing to lend you a certain amount of money. You provide a lender the basic details of your financial situation (your income, your debts, how much money you have in savings, etc) and the lender gives you a letter which essentially states "based on the information that you provided, we are confident you would qualify for a loan up to X amount of dollars." Obtaining a pre-approval letter is a wise step  for two reasons. First, by confirming the loan amount that you would likely qualify for, you'll know which home prices are possible for you. (As a side note, just because a lender will lend you a certain amount of money definitely doesn't mean that you should automatically max this out.) Once you have your pre-approval letter, you can have a more informed discussion about which towns and areas are feasible for your situation based on average home prices. Secondly, when it comes time to make an offer on a particular home, you'll need a pre-approval as part of the offer package anyways. You may have to submit an offer quickly, so it's much better to have this document ready to go instead of scrambling last-minute and risk missing an opportunity.

There are a variety of loan options with different down payment requirements, interest rates, and terms. Your lender will discuss different financing options to help determine which loan suits you best.

• Loan approval & appraisal.

Once you have found a home and the Purchase and Sale (P&S) is signed, the last big hurdle for the buyer is officially securing the financing. During the loan underwriting process, you'll send various financial documents (bank statements, pay stubs, etc) to your lender as he or she works to approve your loan. If your offer included a "mortgage contingency", then we'll pay close attention to the contingency expiration date. (A mortgage contingency provides protection in the event that your loan application is denied. Certain requirements must be met, but essentially if your financing is denied before a specified date then you're able to terminate the purchase agreement without penalty. Naturally we want to see your loan approved before this deadline to ensure there is no lapse in this protection.)

During the loan approval process your lender will also hire a third-party appraiser to visit the property and provide an independent assessment of the home's value (this is the "appraisal"). Basically your lender is confirming that your purchase price is appropriate to protect them from issuing a loan based on an overly-inflated valuation. If this appraised value is equal to or greater than your purchase price, then there is no issue and the process moves forward. If the appraised value is less than your purchase price, it's likely that your lender will only lend money for the home purchase based on this lower value. (This is not necessarily a deal-breaker, however, and there are options we can explore.)

After the appraisal is complete and you receive the official loan commitment, you are ready to close.