Lots of books and articles aimed at homebuyers tell you that you can gain an edge during a competitive real estate market by getting prequalified before you begin your search. That may be true, but how do you find out if you're a "qualified" homebuyer? There are several relatively easy and inexpensive or free ways to find out if you're qualified for a home loan, and how much of a loan you can qualify for.

First, you'll need to be able to prove that you have verifiable employment and a good income. Then you'll need to demonstrate that you have good credit.

Proving that you have a job and verifying income is relatively easy, but proving your creditworthiness is a bit more difficult, because it involves providing lenders with your FICO score. FICO is an acronym for Fair Isaac Corporation, which is a company that computes the credit ratings that are the industry standard by which lenders determine a borrower's credit history--and their potential to repay a mortgage, based on that history. (To learn more about FICO, you can visit www.myfico.com.)

For a fee, you can order your credit reports from all three credit reporting companies (Experian, TransUnion, and Equifax) and your FICO score. It may be well worth your while to examine and compare each of those reports, because they will contain somewhat different information, and some of it may be incorrect.

However, the credit score you pay for is not the same one your mortgage lender will see.

You can also obtain all three credit reports once a year at no cost (which is a good idea, even if you're not planning to buy a home, by the way) by visiting www.annualcreditreport.com or by calling 1-877-322-8228. However, you won't receive your FICO score, which is really the number that's most important to lenders.

Once you have all that information together, you can go to the lender of your choice and work with them to negotiate the best terms, interest rate, and amount of money you can borrow. Using the information you've provided, your lender will be happy to work with you to make your dream of buying a home a reality.

Once you've established the guidelines for your home loan qualification, ask for a "preapproval letter." It lets sellers and their agents know that you've already gone through the process of qualifying for a loan, which means the sale will go through more quickly, which is always a good thing in the minds of sellers. A "preapproved" letter counts more than a "prequalified" letter.

It can take time, but finding out how much you're qualified to borrow can help narrow your home search and give you a competitive advantage when it comes to buying your new home.

Copyright 2006 Jeanette J. Fisher