Preapproval: The lender verifies the borrower’s information and documentation to determine exactly how much it would be willing to lend to that borrower.
Prequalification: The lender relies on information provided by the buyer to estimate how much the borrower could qualify for.
- Pay stubs.
- Last two years’ W-2s.
- Last two federal tax returns.
- Two months’ worth of bank statements of all types of accounts.
- Your credit report.
A pre-approval is not a loan commitment, but it helps speed up the underwriting and loan approval process.
Here are three reasons it’s better to get a mortgage preapproval before you go house hunting.
What is a mortgage pre-qualification?
A mortgage pre-qualification is a good idea about how much you might qualify for should you submit a loan application to a mortgage lender. The loan officer will not ask for any documents to verify the statements made. Which makes a mortgage pre-qualification letter not sufficient for any real estate agent, or seller for that matter. Most lenders will need to check your credit score before issuing a pre-qualified letter, but that’s about the only thing they verify. Finally, you’ll need to let the loan officer know how much cash you have available for a down payment, income to check your debt-to-income ratio, and a general idea of the type of mortgage rate you will receive.
No. 1: The competitive market
Buyers often are eager to start looking at homes and tend to leave what they view as the boring, bureaucratic part of the home buying process for last.
No. 2: No preapproval, no accepted offer
Borrowers who skip the pre-approval process are common and no pre-approval can mean, at least for the immediate short-term which can be critical to get the home you want, you cannot make an offer and thus you cannot receive an accepted offer.
No. 3: You need to know where you stand
Some buyers put off the loan application because they fear a lender may not approve them for the amount they plan to spend to buy the house.
It’s like when people don’t go to the doctor for their annual checkup when they are afraid to find out what’s wrong with them. That’s the same thing with getting pre-approved.
Others simply don’t want to share an abundance of private information with a lender until they actually find the home they want.
You are beyond compare
Even if you pay your bills on time and earn about the same as the friend who just got that $300,000 mortgage, don’t assume you qualify for the same loan.
Getting pre-approved before you shop for a loan also allows buyers time to fix unexpected errors on their credit reports.
Not to mention that currently with how long closing a mortgage takes it could be months before you are ready with financing to actually close on your dream home.
Want to make the right choice? Click HERE to begin the pre-qualification step