Pre-Qualification vs. Pre-Approval
Lisa and Steve immediately fell in love with the one-story home with a covered patio and a big backyard. They quickly made an offer and then began looking for lenders. Unfortunately, they soon discovered that they couldn’t qualify for the home. They 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… There is nothing worse than falling in love with a home only to find that you cannot qualify. And, in today's Austin area real estate market, having a pre-qualification letter, or even better, a pre-approval letter from a lender is essential when making an offer. Sellers will typically not even consider an offer that does not include one. So, before starting to look for homes, get your ducks in a row, get your finances in order and know where you stand. Your stress level will be lowered and your ability to compete will be enhanced.
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 lender assembles a credit package that includes a loan application, credit report, income and asset information, and 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.
Benefits of 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.
Are you ready to get started on your journey to home ownership? Connect with me today...I am here to help you every step of the way along your path to purchasing a new home.