Pre-approval is the First Step when we submit an offer for a home you love I need; the signed contract, the proof of funds for the deposit, and an approval letter from your lender. One way to prove you are serious about buying a home is to get pre-approved for a mortgage before starting your search.
Understanding your budget will give you the confidence to know if your dream home is within your reach. Freddie Mac lays out the advantages of pre-approval in the ‘My Home’ section of its website.
“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can move faster, and with confidence, in competitive markets.”
One of the many advantages of working with me is that I have many lenders who will be able to help you with this process. Once you have selected one, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment, and residential history.”
Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:
Capacity: Your current and future ability to make
your payments
Capital or Cash Reserves: The money, savings, and investments you have that can be sold quickly for cash
Collateral: The home, or type of home, that you would like to purchase
Credit: Your history of paying bills and other debts on time
Getting pre-approved is one of many steps that will show home sellers that you are serious about buying.
Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be surprised at your ability to do so as well.
The first step in your home-buying process should be to get pre-approved for your mortgage. This allows you to budget before you fall in love with a home that is way outside of your budget. The next step is to list all the features of a home that you would like, and to qualify them as follows:
‘Must-Haves’ – if this property does not have these items, then it shouldn’t even be considered. (X distance from work or family, number of bedrooms/bathrooms)
‘Should-Haves’ – if the property hits all of the ‘must-haves’ and some of the ‘should-haves,’ it stays in contention but does not need to have all of these features.
‘Absolute-Wish List’ – if we find a property in our budget that has all of the ‘must-haves,’ most of the ‘should-haves,’ and ANY of these, it’s the winner!
Having this list printed out before starting your search will save you time and frustration, while also letting your agent know what features are most important to you before he or she begins to show you houses in your desired area.
Spot the Difference why Pre-approval is the First Step
Pre-Qualified vs. Preapproved: What’s the Difference?
Pre-qualification and preapproval sound similar, but typically only one — preapproval — will get real estate agents and sellers to take you seriously.
In today’s competitive market, agents likely will require you to be preapproved before showing you properties.
But there’s a wrinkle to keep in mind. Lenders use their own terms to describe the different application and approval phases. For simplicity, we’re using the terms “pre-qualification” to refer to an initial, less formal phase and “preapproval” to refer to a phase involving documentation of financial information and a credit check.
What is mortgage pre-qualification?
Generally in the pre-qualification phase, you describe your credit, debt, income and assets, although application processes vary by lender. Based on this overall financial picture, the lender estimates how much you may be able to borrow. Some lenders will also do a credit check.
A credit check results in an inquiry on your credit report. A “soft inquiry” doesn’t affect your credit score, but a “hard inquiry,” which happens when you apply for a loan, can lower your credit score by a few points. The impact will be minimal, and credit scoring models generally count multiple hard inquiries in a short amount of time to shop rates as a single inquiry.
A credit check for pre-qualification may involve only a soft inquiry, but the only way to know is to check with the lender. If you’re concerned about even a small drop in your credit score, it might make sense to hold off on applications that involve hard credit inquiries until you’re ready to shop for a mortgage.
You can get pre-qualified over the phone, online or in person.
Getting pre-qualified can give you a sense of your financial readiness and introduce you to various mortgage options. It’s often a good step for first-time home buyers who are just testing the waters and aren’t ready to jump in.
What is mortgage pre-approval?
A mortgage preapproval takes the process to the next level. Preapproval requires you to provide proof of your financial history and stability. The lender will verify your income, employment, assets and debts, and will check your credit report.
You’ll provide information in the form of W-2s, a current pay stub, a summary of your assets and your total monthly expenses, and, if you already own real estate, a copy of your mortgage statement.
With many lenders you can get preapproved online, with phone support from a loan officer if needed.
If you satisfy the requirements, you’ll get a preapproval letter, which states the amount and type of mortgage the lender is willing to offer, along with the terms.
Your real estate agent will want to see the letter. Knowing how much you can borrow will help the agent understand your price range and direct you to appropriate listings. Sellers will also want to know that you’re preapproved. Virtually no offer to buy a home without mortgage preapproval will be considered in today’s market, unless the buyer is paying 100% in cash.
Pre-approval, though, isn’t a guarantee of final mortgage approval. After you find a home to buy, your application will go through full mortgage underwriting. The lender will review your finances and order a home appraisal to estimate the property’s value and a title search to confirm the property is free of any claims.
Pre-qualification vs. Pre-approval
Pre-qualification |
Preapproval |
---|---|
May include a credit check. |
Includes a credit check. |
Requires an estimate but no proof of your credit, debt, income and assets. |
Requires documentation of your financials and verification of employment. |
Estimates how much you can borrow to buy a home. |
Provides a preliminary mortgage offer, but not a guarantee of full loan approval. |
Won’t convince real estate agents and sellers you’re a serious buyer. |
Gives real estate agents and sellers confidence in your ability to get a mortgage. |
Can take as little as a few minutes to provide information. |
May take 30 minutes or more to fill out the application. |
Can get an answer in a few minutes. |
May take days to get an answer. |
Learn more here https://www.nerdwallet.com/article/mortgages/pre-qualified-vs-preapproved?trk=mortgagePreapprovalFaq/