Most home buyers need mortgage loans to purchase a home. Anyone who has ever searched for a mortgage has been asked if they would like to obtain a “pre-qualification” or a “pre-approval”. Most prospective home buyers are confused about the two terms and they thus end up making some mistakes in the process.
Most home buyers need mortgage loans to purchase a home. Anyone who has ever searched for a mortgage has been asked if they would like to obtain a “pre-qualification” or a “pre-approval”. Most prospective home buyers are confused about the two terms and they thus end up making some mistakes in the process. It is thus important to clearly differentiate between the two terms before you plan to apply for a mortgage loan.
• Pre Qualification
Qualification is a basic assessment of a potential buyer’s ability to qualify for a mortgage. It amounts to a lender’s “opinion” about the range of home prices that fit the buyer’s budget. It can aid the buyer in making important financial decisions, in deciding his affordability and the right time for him to invest on a property.
Pre qualification is like a quick credit check and involves conversation with the buyer or a loan officer. A good loan officer can “pre-qualify” people in about 10 minutes over the phone by knowing details about the person’s income, credit, assets and monthly debts. The process is devoid of any document check.
The information provided by the borrower during queries helps the lender decide upon “X” amount of loan that the borrower may be entitled to.
• Pre- approval
Pre- approval is different from pre-qualified. A pre-approved buyer would have submitted almost all the documents necessary for the loan to the granted. The lender checks the potential buyer’s credit and other financial information and lets the buyer the amount of loan he can avail. The buyer will now know the maximum amount he can get and is thus in a stronger bargaining position with the seller.
The post-approval letter represents an actual commitment on part of the lender. Even a mortgage professional can approve the loan. Any serious buyer should choose to have a pre-approval letter and not just a pre-qualified letter. A pre-approved letter can give confidence and to the buyer as well as the realtor about price range in obtaining mortgage approval.
A few tips to be noted in applying for a loan.
• Do not give your social security number to anyone right away. Do this only when you are sure about whom you will work with.
• Watch out for loan officers who bully buyers into revealing their social security number. If they cannot discuss their programs without your social security number, look out for another loan officer.
• You are entitled for pre-approval once you have provided accurate information. However, remember that this does not guarantee you will get the loan to buy or build a house of your choice.
• A pre-approval is always better than pre-qualified. But this does not guarantee final underwriting approval.