What is the Difference: Pre-Qaulified vs Pre-Approved?
What’s the Difference?
One of the most important aspects of buying your new home is, simply, preparation. Sure, you’ve got to decide on a location. You’ll budget your monthly expenses to determine how much home you can afford. You’ll choose a real estate agent and begin looking at houses in your ideal area.
But there’s a step that would-be homeowners sometimes overlook: pre-qualification. Many people who are shopping for a new house mistake pre-approval for pre-qualification. So what’s the difference? Let’s take a look.
What is Pre-Qualification?
The absolute first thing you should do, before you even begin budgeting and looking for homes, is to get pre-qualified. Thankfully, pre-qualification isn’t difficult at all.
The first step to pre-qualification is to research lenders. Ask your friends, or look into lender reviews online. Find the lender that seems to fit your financial situation the best, then ask for pre-qualification.
To be pre-qualified, you’ll need to provide your lender with some information about yourself. This information will include your debts, your income and any assets you may hold. You may also be required to provide a work history and other information.
Using this information, your lender will come up with a rough figure: the size of the mortgage you can afford, given your debt to income ratio and other factors. This pre-qualification does not impact your credit score, and with most lenders it won’t cost you anything.
Your pre-qualification is based on the bare basics. Your income, your assets and your debt does not, of course, indicate your creditworthiness. So once you get an idea of the size mortgage you may qualify for, it’s time to get pre-approved.
When you request pre-approval, you’re going to need to furnish a bit more in-depth information. Your lender will pull your credit report at this point and will analyze it carefully. He’ll look at your work history; you’ll need, at an absolute minimum, a year of steady employment. He’ll look at your outstanding debts, your credit score and an overall picture of your financial history.
Once your financial picture has been completely analyzed, your lender will present you with a written commitment for a loan amount. For instance, that commitment may be for $400,000; that means you can begin to shop for a home at or under that price.
Note that the commitment is conditional. Once you receive your pre-qualification, it’s important that your credit score remain the same. Changes to your report or your score may impact your ability to close on your house.
What Comes Next?
Once you’ve been pre-approved for a mortgage, shop around! Find a home that’s within your price range and present that property to the bank. At that point you’ll receive a loan commitment, which is a statement from the lender that he will, in fact, lend to you.
To receive a loan commitment, your credit will be checked one more time. The bank will also review the appraisal of the home and your financial situation. Barring any changes to your situation, you’re ready to close on your home! If you have any questions about the loan pre-approval process, please feel free to contact me; I can help you navigate the process. Let’s set an appointment! Call me at [757] 206 - 2859 or contact me on social media for assistance.