The Joy of a Pre Approval!
Knowing how to properly navigate the uncertain mortgage loan waters can be quite overwhelming, especially if you’re new to the process and aren’t sure what all the terminology means and whether or not it applies to you. A good example of this is mortgage pre-approval.
If you’ve recently been thinking about buying a home you may have heard people throw around terms such as “pre-qualification” and “pre-approval” (which are in fact two different things). Here is the breakdown of the why, how and what you need to know about pre-approval.
Pre-Approval vs. Pre-Qualification
First let’s start of by defining what each of these terms means. Pre-qualification is the first, non-committal, step towards getting a home loan. It provides an overall look at your debt-to-income and assets allowing a lender to give you an estimate of what you can potentially afford to pay for a house. However, pre-qualification doesn’t look at your credit report and therefore doesn’t carry the same weight as pre-approval. It also, doesn’t guarantee that a bank will offer you the same as the estimated amount. Pre-qualification is recommended for people who are starting to look around, but won’t be making any serious offers for at least 4 months or longer.
Pre-approval, on the other hand, is a more involved process that carries much more weight in the eyes of lenders. For pre-approval you will complete an official mortgage application – which includes an application fee for many lenders– and supply all the documentation necessary for an extensive check into your credit history and financial background.
Unlike pre-qualification that gives you an estimated amount, pre-approval will supply you with an exact loan amount. This will save you from wasting time looking at homes outside what you’ll be offered. Also, one of the biggest advantages to getting pre-approved is to show the potential seller of your dream home that you have already been approved for a loan in the amount they are selling for – giving you an edge over other offers. In fact, since the market crash a few years back, many sellers won’t even consider accepting an offer without a pre-approval letter from the buyer.
Why Should I Get Pre-Approved, isn’t it just an extra step?
While pre-approval does add a few extra steps in the homing buying process, in the long run it can make the difference in you obtaining your dream home or losing it to another buyer.
Besides showing an exact amount that you will be approved for, getting a pre-approval also allows you to move quickly once you find that perfect property (and if you’ve ever looked for a new home, the perfect match can be hard to find). Since you’ve been pre-approved, your offer won’t be reliant on obtaining financing. To the seller this shows your offer is serious and it will give you an edge in an already competitive market.
How do you get pre-approved?
The thing you need to do on the road to pre-approval is speak with a mortgage lender. If you are working with a realtor, they will often have suggestions, but do your research. Check out online reviews from people who have worked with the lender you’re considering. It’s important that you find someone who is knowledgeable, collaborative and most of all trustworthy.
Once you’ve selected the lender you’re going to work with, make sure to come prepared with:
-Employer names and addresses
-Your current landlord or housing information.
From there your lender will generate an estimated loan amount and review the different loans options available. In no time you will have your pre-approval.
Remember, just because you get approved for a high amount doesn’t mean you’re required to take out a loan that big. Be honest with yourself and choose a price range that feels comfortable for your situation. Armed with your pre-approval in hand, you will be one step closer to owning the home you’ve always dreamed of.
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