Why do I need to be a pre-approved buyer?
You need to be a “pre-approved” buyer because we are in a very hot “seller/s” market. Inventory is down so there are not as many houses to choose from. This means that may be bidding against someone else so everything in your favor counts.
What is the difference between Pre-Qualified vs. Pre-Approved?
These terms are used interchangeably by many people but they are very different. It’s important for both buyers and sellers to understand the difference.
Pre-qualification is just the first step. It could be as little as you just talking with a lender explaining how much you earn, what your debt is, and what assets you own. It’s based on what you tell the lender. You might submit documents to them but unless they verify those documents you are only pre-qualified. This does not include the lender/bank looking at your overall ability to buy.
The initial pre-qualification step allows for the discussions of your goals regarding a mortgage – how much you want to put down, how much you want your monthly payment to be. The lender will explain various mortgage options and recommend the type that might be best suited.
Pre-approval is the second step – when you complete the online application and submit all the documentation to confirm what you have said. The bank/lender then verifies what you said is true. For example, they run your credit report. You supply the bank/lender with detailed documentation for everything – debt, income, and assets.
Going through the pre-approval process also offers a better idea of the interest rate to be charged. Some lenders allow borrowers to lock an interest rate at this point – although you need to be sure you are going to find a home soon if you do this! They may also charge an application fee for pre-approval, which can amount to several hundred dollars.
Lenders will provide a conditional commitment in writing for an exact loan amount, allowing buyers to look for homes at or below that price level.
The advantage is that when you make an offer you are one step closer to getting a mortage and sellers vew this very favorably.
What are the key differences between Pre-Qualification and Pre-Approval?
Below is a quick rundown of how pre-qualification and pre-approval differ:
|Do I need to fill out a mortgage application?||No||Yes|
|Do I have to pay an application fee?||No||Maybe|
|Does it require a credit history check?||No||Yes|
|Is it based on a review of my finances?||No||Yes|
|Does it require an estimate of my down payment amount?||No||Yes|
|Will the lender give me an estimate for a loan amount?||Yes||No|
|Will the lender give me a specific loan amount?||No||Yes|
|Will the lender give me interest rate information?||No||Yes|
What are the advantages to getting pre-approved?
What is the main thing you should remember during the buying process?
After you have agreed to buy a home and everyone has signed, do not finance a large furniture purchase or buy a new car! The lender/bank will re-verify your ability to purchase within 48 hours of closing – so you do not want anything that they have verified before to have changed!