Pre-Qualified vs. Pre-Approved
Getting pre-qualified and pre-approved are the very first steps of the home buying process. Without this step, you can’t get a mortgage, meaning can’t buy a home. Unless you’re a cash buyer. Nonetheless, most people will have to go through this process before home shopping. If you’re unsure of how much you’re likely to afford, try using a mortgage prequalification calculator first.
Here’s a homebuyer tip from Bank of America: “Expect surprises! Lenders look at every detail of your finances when granting preapproval. You might be asked about a car loan payment you made with a credit card, for example. Be prepared to answer lender questions as soon as they come up.”
This is a general overview of your creditworthiness. Basically, this an overall estimate of how much house you might be able to afford. During this period, you won’t need a credit report as this is not an in-depth look at your financials. Instead, you’ll supply simple financial information, such as debt, income, and assets.
Along the way, the lender will enlighten you with the various mortgage options available. At the same time, they will also suggest which mortgage is best for your needs. Your prequalification letter should arrive in about one to three days. Nonetheless, if you plan to begin home shopping soon, you should at least get this done first. Home sellers and real estate agents want to know you’re likely to afford the house(s) you’re looking at. Otherwise, you might not get taken seriously.
The pre-approval process is an in-depth look at your financial history and stability. First, the lender will look over your income, employment, assets, debts, and run a credit check. You may need other documents for divorce, bankruptcy, foreclosure, rental history, etc.
If you’re comfortable with your financial stability, you might as well get preapproved instead. After all, this is the closest you can get to show your creditworthiness without buying a home.
It should be noted each mortgage lender handles the process differently. Some may have more or fewer steps than one another. Finally, the time it will take to get pre-qualified and pre-approved will also vary.
Why you should get pre-approved before shopping for a home
Having a pre-approval letter carries more weight to both Realtors and home sellers. Therefore, sellers are more likely to take you seriously. By now, you will also have a general idea of your interest rate. This can allow you and your real estate agent to focus on homes that fit in the price range you’re most likely to get a loan for.
Nonetheless, not having a pre-approval letter handy can have negative results. The closing process may take longer, and sellers might not take you as seriously. Both real estate agents and sellers want to know you’re a legitimate homebuyer instead of someone who is wasting time window shopping.