Should you get pre qualified, or pre approved when it’s time to shop for a new home? The home loan process can feel overwhelming and be difficult to understand. There are many real estate terms used in transactions. Both buyers and sellers find terms like “Pre-Qualification” and “Pre-Approval” often used interchangeably. Even some loan officers and real estate agents will use the terms incorrectly. It’s no wonder buyers find themselves wondering which choice to make!
The first step in obtaining a home loan is to meet with a reputable lender to discuss your financial situation. Generally, you will need to provide them with recent pay stubs, W2s, bank account statements and the last 2 years of your tax returns. If you are divorced and/or have child support obligations or receive payments, your final court documentation will be requested as well.
A mortgage loan pre-qualification is an estimate of how much house you can afford. It gives you an idea of how much money a lender would be willing to loan you. It is best to get pre-qualified at the beginning of the process, before you even start looking at properties. Your lender will discuss your income, job stability, and overall assets and debts. After a basic review of your qualifications and your down payment options have been discussed, they will issue a Pre-Qualification Letter to you as the potential buyer. This letter will identify the maximum monthly mortgage payment you can potentially afford, your down payment requirement and basic terms of the loans you’d qualify for. This letter only provides you with an estimate! It’s purpose is to help you figure out if buying a home is a viable option, and if so, what your ball-park price range would be.
A Pre-Approval is quite different from a Pre-Qualification. In this case, the lender collects your ACTUAL information and proof of eligibility and has it reviewed by their underwriter for approval. Sometimes there may be a fee for this application process. Your lender will check your credit history, your employment and your financial history. Pre-approval means that you have a tentative commitment from a specific lender to fund your mortgage. A Pre-Approval letter is almost like shopping with cash. The only remaining piece of the puzzle is the property which you are interested in buying. It is important to remember that funding will only be given once the property appraisal and title search check out on the house you have chosen to buy.
Need a Referral?
Neither of these two letters are binding. You are always free to shop rates and obtain a mortgage from a different lender. Just keep in mind that you don’t want too many inquiries on your credit record. If you need a referral for a GREAT lender, I am happy to refer you to one of the best in the business! Reach out to me anytime and I will point you in the right direction.