If you are in the market for a new home and have chosen to work with real estate agent, one of the first things you will be asked is whether you plan on paying cash or financing. If you are financing, the next question will be whether or not you are preapproved.
The pre-approval/pre-qualification process is designed to let everyone involved in the transaction know that a lender has reviewed your financial situation and approved you to purchase a particular house. Thus, a buyer with a pre-approval letter in hand is a much stronger candidate than a buyer who is not pre-approved.
In the housing industry, the terms "pre-approval" and "pre-qualification" are often used interchangeably and may be mistaken for the same thing. In order to differentiate between them, it may be helpful to consider the following scenarios:
Jane is looking to purchase a new home. She calls a lender, speaks to a loan originator for a few minutes, and obtains her pre-qualification letter. She is not asked to submit any income or asset documentation but is told she could qualify for a home with a purchase price up to a $250,000. She finds the perfect house with a listing price of $249,900. Her offer is accepted. Now, Jane must submit documents to verify her income and finances. She gets a call from her lender stating that her documentation has been reviewed and the underwriter denied the loan because she only recently began to receive overtime pay and a two year history of receiving overtime pay is required for qualification. Jane is not approved for the $250,000 purchase price. Her deal is denied.
Liz is also looking to purchase a new home. She fills out an online application with VanDyk Mortgage and speaks with a Home Loan Advisor who says her application is looking great. Before a pre-approval letter is issued, she is asked to provide income documentation so her figures may be verified. Liz is able to quickly gather and submit the documentation and obtain a pre-approval letter for up to $250,000. She places an offer on the perfect home a week later and her offer is accepted. Since VanDyk already has the majority of her documentation, the lending process is smooth, the loan closes quickly, and there aren’t any surprises along the way. Liz is pleased to be able to move into her new home within 30 days of putting in her offer.
As the experiences of Jane and Liz demonstrate, the difference between a pre-approval and pre-qualification is the verification of documentation. Verifying your income documentation up front helps us pinpoint potential issues at the beginning of the process and allows us to give you a pre-approval letter you can count on.
In recent years, mortgage guidelines have been tightened. Documentation requirements have been expanded and followed more closely. A pre-approval gets you through the process and uncovers potential pitfalls long before you become obligated by a contract to purchase. You'll be certain about the price range that's best for you. You'll know how much cash you'll need to close, and you'll know your maximum monthly payment. Understanding your limits will help you negotiate with confidence. Plus, since sellers like a sure thing, you'll have an advantage over buyers who may not have been through the process. Begin the Pre-Approval Process Now!