Contrary to popular belief, the homebuying process starts in a lender’s office, not in an open house or real estate book. Many homebuyers are confused with the difference in terms between pre-qualified and pre-approved. Pre-qualified is the first step in the lending process. This step determines how much of a mortgage you, as the homebuyer, will be able to afford. The pre-approval process follows. This step involves the lender checking your credit, verifying your financial documentation, and approving you for a specific loan amount. So why is a mortgage pre-approval so important? Let’s discuss the differences between pre-qualified and pre-approved to determine the importance of the latter.
Pre-qualification is the first step in the home buying process. You will submit your financial information to your lender. This includes a list of all your income, debt, and assets. Once your lender performs an evaluation of your financial situation, he will give you an idea of how much of a mortgage you’ll be able to afford. This service is usually offered without charge. Normally, this portion of the proceedings does not yet involve an analysis of your credit score. Upon completion, your lender will then discuss any goals or hurdles you may face in obtaining your ideal mortgage. He will most likely explain your various mortgage options and give recommendations in your best interests.
The pre-approval portion of the lending process is much more involved than pre-qualification. When you’ve moved to this step, you’ll complete a mortgage application. This usually involves paying an application fee. You’ll then supply all the necessary documentation for an extensive credit check. Upon completion and receiving the results, your lender will provide an idea of the interest rate for which you qualify along with a mortgage approval letter. Your mortgage approval letter will provide the information of your approval and potential mortgage amount. This sets the price point at or below for which to start your home search. You’ll then move onto a loan commitment and home appraisal steps, once you’ve picked out that perfect house.
A pre-approval enables you to move quickly once you’ve found your perfect home. It is one step further into the homebuying process than pre-qualification. When you’re ready to submit an offer on the house, you won’t be held up on obtaining financing, which can not only save you time, but from losing that ideal home, as well. Having your pre-approval letter in hand lets the seller and realtors know that you are serious and active in your home-buying search. Being prepared is half the victory. As Alexander Graham Bell once said, “Before anything else, preparation is the key to success.” Happy Home Hunting!