Mortgage “Pre-Approval VS Pre-Qualified”. What are the differences? And Why is it matter?
- myrealtornews
- Aug 11, 2016
- 2 min read
What is a mortgage pre-approval?
Mortgage pre-approval is a commitment from a lender to provide you with home financing up to a certain loan amount—basically the stamp of approval that you have the money, credit history, and other credentials to buy a home up to that price.
How to get pre-approved:
Generally, the paperwork required for your lender to earn your pre-approval includes the following:
Last 30 days pay stubs showing your year-to-date income
Two most recent years of Federal tax returns
Two most recent years of Corp tax returns (if applicable)
Two years of 1099 or W2 forms from your employer
Most recent 2 months or a quarterly statement of all of your asset accounts, which include your checking and savings, as well as any investment accounts such as CDs, IRAs, and other stocks or bonds
Residential history for the past two years, including landlord contact information if you rented
Driver license, social security card, green card (if applicable) (front and back)
Bankruptcy package (all schedules) and a discharged letter (if applicable)
Divorce decree,(if applicable)
Pre-approval vs. pre-qualification: What’s the difference?
Mortgage “pre-qualification” should not be confused with “pre-approval”.
Pre-qualification is based solely on verbal information you tell a lender about your income and savings. It shows how much you could theoretically borrow, but it’s no guarantee—which means these buyers will have to get officially approved for a loan later on and cross their fingers it works out.
Pre-approval, on the other hand, means the lender has already done its due diligence and is willing to loan you the money. With a “Pre-approval” letter, a lender has guaranteed to give you a loan before you’ve even made an offer—or even before you’ve seen a home you like!
This is why mortgage pre-approval matters, and how it can give you an edge when shopping for a home. Plus, you’ve got an official letter from your lender saying so that will speak volumes to a seller.
How pre-approval helps you buy a home
When sellers accept an offer, they want the deal to go through. However, if the buyer isn’t pre-approved for a loan, this can put the whole deal in jeopardy—because if the loan doesn’t get approved, the buyer will likely be unable to follow through.
A pre-approval provides that extra measure of security to a seller that you are both willing and able to buy the house. As a result, sellers will likely pick you as a buyer over someone without pre-approval since you’re a sure thing, and they won’t have to hold their breath that the deal might not go through.
Bottom line: While pre-approval is a pain, you’ll have to pony up all that paperwork sooner or later anyway. Why not do it on the early side and get a head start on the competition and shop for your dream home with confidence? And, when shopping for that house of your dreams, having a pre-approval letter will open doors immediately, and put you at the head of the line among potential buyers.
Comentários