Pre-Qualification vs Pre-Approval
There are a lot of terms that are used in real estate that can be confusing or unfamiliar. One set of terms that comes to mind is pre-qualification and pre-approval. These words are talked about a lot with first-time home buyers and may seem the same or even unnecessary to think about. In fact, these terms are indeed very important and necessary when it comes to buying a home.
Pre-Qualification. Quick and Easy.
Pre-qualification for a mortgage is the easier of the two when talking about pre-qual and pre-approval. This is when you call a lender or go online and give them some pretty basic information on yourself to get an idea of what you can afford when looking for homes. The important thing to remember is pre-qualification will give you a quite broad range of mortgages that will work for you. The main reason people get pre-qualified is just to give them an idea of what they are looking at number-wise. This is a very casual approach to number shopping…if you will.
Pre-Approval. Serious About Buying.
Pre-approval is what a buyer will need to do when they are serious about the home hunt process. They are ready to find an agent and start looking for a home or property. Pre-approval is different from pre-qualifying in that you are giving specific information to a lender allowing them to look at your financial situation and then, provide you with a letter of approval for a very specific price range you will be able to afford when buying. Don’t forget to have any co-borrowers get pre-approved as well. This is important.
What Will the Lender Need From You?
The most common pieces of information a lender will ask for are; most recent pay stubs, W-2 for the last two years, bank statements on checking, savings, and investment accounts, and if you are self-employed tax returns for the last two years.
Once the lender has this important information from you, they will pull a credit report and be able to form an official letter of pre-approval.
The letter of pre-approval is something you will want to show your agent so that they know you are serious and not just “wasting their time” for lack of better terms. This letter will also help when making an offer on a home because not everyone goes through the pre-approval process and the fact that you did will show the seller that you are serious and give you a potential leg up on competing against other buyers who don’t have this information. If you have an offer that is a bit less than someone who isn’t pre-approved, it might carry more weight showing them you are ready and willing to buy.
Is That All? Will This Guarantee An Agreement?
With all this talk about making sure you have your ducks in a row by getting pre-approved by a lender prior to looking for a home, the pre-approval does not guarantee you will win all the deals you offer on. On occasion, people still get turned down for loans even though they have been pre-approved. Most commonly it is because of appraisals or title issues. Title issues might include unpaid judgments or how the property was transferred between previous owners or issues with property lines. These issues can be cleared up but delay the buying process a bit.
Another thing to keep in mind is your financial health during the home hunt process. One missed payment or a change in employment can ruin your chance of getting a home loan. So, once you have that approval letter, don’t change jobs or miss any payments.
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THE GROESBECK GROUP/ Compass