Pre-Qualification and Pre-Approval
Getting ready to buy that dream home, first home, or second home? One of the first steps in the home buying process, can also be the most overwhelming (and sometimes confusing). But that’s where your knowledgeable Cora Bett Thomas Realty agent comes in. They’re able to break down the difference and importance of getting pre-approved and pre-qualified, so you won’t miss a beat!
Here’s a brief overview:
Step 1. Pre-Qualification (this is different than Pre-Approval)
Before you start the hunt with your real estate agent, often times your realtor will recommend a list of 3-5 lenders to get you pre-qualified for a mortgage. Getting pre-qualified for a home is the peace of mind that both you and a potential seller need to get started in the process. But don’t let this step deceive you, pre-qualification isn’t a promise that you’ll get a loan for the home you are wanting to buy. Instead, it’s a promise that a loan officer has briefly looked at your finances; from your income and estimated credit score to your savings. From their research, they have determined the approximate amount of money that you will most likely be approved to borrow for a mortgage. Pre-qualification shouldn’t affect your credit, so pre-qualify as much as you want. This step will make the home buying process much smoother.
Pre-qualification is especially important for first-time home buyers. Take the information given to you from your lender and do some simple mortgage calculations to predict what your monthly payments will be. Buyer beware, just because a lender says you prequalify for a certain monthly mortgage, doesn’t mean you’ll be comfortable with that commitment for years to come.
Pre-qualification is not required, but it is certainly helpful. Use this as a guide for home-shopping, it’s just a rough estimate for how much you can afford.
Step 2: Pre-Approval
Use this step to get serious about signing those papers, and buying a home. Pre-qualification and pre-approval differ by the depth of the lender’s search into your finances. This step provides you with more concrete numbers.
Your lender will pull credit history, look at your income and debts, and you’ll have to have a laundry list of documentation for them to do so. This process, generally, doesn’t take longer than 24 hours… as long as you are able to provide all necessary documents. Due to the extensivity of the check this step will count as a “hard pull” on your credit, meaning it could have a negative affect on your credit score. So keep an eye out for credit score changes. The higher your credit score, the more you are expected to get pre-approved for.
The pre-approval process will also provide you with a letter outlining the expected loan amount and terms, based off the lenders research. This letter gives you the upper hand when your real estate agent places an offer. This letter is only good for 60-90 days, so make sure to put this timeline into consideration when getting pre-approved.
This pre-shopping process is an important one. Both pre-qualification and pre-approval prove to the seller that you have the funds to buy your new home. However, neither guarantee a loan with those specific terms.