Money is one of the biggest concerns for home buyers. Can we afford a home? How much can we afford? Will we even be approved for a mortgage loan? In the past, a pre-qualification appointment with your lender proved sufficient to start the house-hunting process. However, in today’s market, most sellers want to see a pre-approval letter with a buyer’s offer. You might wonder to yourself, “what’s the difference”? As it turns out, plenty.
Pre-Approval vs. Pre-Qualification
Pre-Qualify
This takes much less time to accomplish than getting pre-approved. Basically, your lender asks you questions about your income, debts, and any assets you own. The lender then takes that information and determines an estimate of what you might receive approval for. However, this is not an actual approval. Instead, it provides you with a rough estimate of the maximum amount a bank would possibly approve you for based only on income and debt load. They do not pull your credit or do a “deep-dive” into your financial situation. Pre-qualification only takes about a day or two.
Pre-Approval
On the other hand, getting pre-approved for a home mortgage takes much more time. Plus, sellers put offers that include a pre-approval letter at the top of the pile. For this part of the home-buying process, you must fill out an official loan application. Then, your lender requires documentation of income (bank statements, paycheck stubs, W-2’s, 1099’s, tax returns, etc.), a complete list of assets (401k, retirement accounts, any other properties you own), and a list of your debts. After that, they run a full credit check on all applicants. After about a week or so, your lender will come back to you with the maximum amount you qualify for, your interest rate, and what type of loan you qualify for.
Now, do not mix pre-approved up with approved, either. You still need to keep your spending to a minimum and make no new major purchases while in escrow. Your lender runs a second credit check a few days before closing. If your debt-to-income ratio changes and/or your credit score drops due to higher balances on your credit cards, you might still find your loan declined by the bank. So, keep your nose clean until you sign on the dotted line and receive the keys to your new house.
Lori Cain, REALTOR®, Serving Midtown and the greater Tulsa, OK area. Call 918-852-5036.
[…] necessary…especially when home selling between family members. However, if the buyer needs to obtain a mortgage loan to pay for the home, the lender requires an appraisal. If the property does not appraise for at least the sale price, […]