I’m so glad you asked – because it’s crucial.
Pre-Qualification vs. Pre-Approval
Luke immediately fell in love with the two-story with a brick patio and big backyard for BBQs. He quickly made an offer and began looking for lenders. Unfortunately, he soon discovered that he couldn’t qualify for the home. He tried to find something else in their price range, but other houses paled in comparison. If only they had shopped for loans before looking at houses…
An expert Realtor would have made sure Luke was pre-approved way before he saw the home!
One surefire way to reduce stress during the process of home buying is to seek pre-approval, actually applying for a loan before finding a house.
The loan agent asks for a few bits of information:
-A loan application
-Income and asset information with supporting documentation.
These documents are then submitted to prospective lenders who underwrite the file, issuing credit approval or denial.
Buyers who are pre-approved are taken more seriously than their pre-qualified counterparts. Pre-qualification is not a loan commitment from a lending institution; it is only a loan agent’s opinion that you will be able to obtain financing. Verifications are not usually made, so formal approval is not issued. These days, virtually anyone can achieve pre-qual status.
Pre-approval, on the other hand, signifies that the lender has taken the application through a rigorous procedure. So buyers with pre-approval status can basically write their own ticket.
Check out these benefits of a pre-approval:
1. If you make an offer on a home and then apply for a loan, you are at the lender’s mercy. He sets the interest rate and points, aware that you do not have time to shop around.
2. Understanding the breadth of your financial reach will save the time spent looking at houses you can’t afford.
3. Shopping for a loan allows you to settle on a house payment that fits your lifestyle. If you rely on your lender to tell you what you can afford, you may end up with a high mortgage payment. Most people can qualify for more than they would feel comfortable paying.
4. Having a pre-approval letter from a lender gives you an edge in a situation where multiple offers have been made on a house.
5. Pre-approved buyers can generally close escrow more quickly. Once you submit your credit package, most of the legwork has already been done.
Remember, neither pre-approval nor pre-qualification are absolute loan commitments. Lenders must still assess property appraisals, verify information, and, in many cases, verify credit before funding the loan.
If you ever have any questions about pre-approvals, contact me! I’d be more than happy to walk you through it and get you in touch with one of my recommended Loan Officers.