Getting ready to buy a house? You’ve probably heard someone talk about pre-qualification. They may have mentioned that you should get pre-approved. In fact, the two terms are often used interchangeably. However, their actual definition, requirements, and significance are very different.
Pre-Qualification
Pre-qualification is the first step you’ll take if you are ready to start your new home search. To begin, you will contact a mortgage loan officer, inform them that you are looking to buy a house in the upcoming months, and they will begin to gather some basic information, such as income, monthly debts, and credit score. After providing information online, over the phone, or in-person, the lender will be able to provide you with an estimate of your maximum monthly mortgage payment and how much you may be able to borrow. The goal of this process is to give you an approximate starting point so you know roughly how much you may qualify for.
Pre-Approval
Once you are pre-qualified, the next step in the process will be to get pre-approved. This process is a bit more involved. Your loan officer will require more paperwork. While the process may vary by lender, you will typically need to provide copies of your paystubs, bank statements, and tax returns. In addition to reviewing your financial documents, the loan officer will also check your credit history to evaluate your creditworthiness and financial situation. At the end of the process, the loan officer will provide you with a letter of pre-approval, a document stating how much you are approved to borrow.
In a balanced market, a letter of pre-approval helps give you a competitive advantage. However, in a seller’s market, a letter of pre-approval is an expectation most sellers will rarely disregard. While the letter isn’t final approval and you will need to go through processing and underwriting, the letter is a symbol of your commitment; it helps sellers know that you have taken the appropriate steps to submit verifiable documentation to a lender – helping them know they are one step closer to making it to the closing table.
Final Thoughts
While nothing is guaranteed and there are some items you will need to be mindful of as you navigate financial aspect of the home buying process, pre-approval brings you closer to your goal of homeownership. Not ready for pre-approval? Not a problem. Pre-qualification can help you understand your current financial situation and provide you with an approximation of what you may qualify for.
If you have questions about the home buying process, do not hesitate to contact me. I can guide you throughout the different stages and connect you with a team of professionals that have the knowledge and experience to help you achieve your dream.