Picking out the home of your dreams is always the fun part, but to get the keys you’ve got to do a little bit of work. But I’m not just talking about how you search, I’m talking about the financial part. There’s nothing worse than someone falling in love with a home I’ve shown them, and find out that they are not totally done with the mortgage work they need to do before putting in that offer. See you may know how much you can afford– but a seller wants to know that a bank will actually lend you that amount. And this is where we need to clear up the differences between a pre-qualification or a pre-approval letter from a lender:
Pre-Qualification
Pre-qualification is a great start on your mortgage start to figure out what you can afford and what you probably need to start to save in order to cover extra expenses that come with closing and moving homes. A pre-qualification letter takes basic info from you regarding your overall finances (income, debts, assets) and gives a general idea of what a bank will lend you for a home. However, this letter does not take into account your credit score or credit history. Pre-qualified is usually a quick over the phone, phone call to a lender to get this amount.
Pre-Approval
Pre-approval is the big guns compared to the pre-qualification letter. This is a much more in depth look at your finances, includes credit history and score. A pre-approval letter is going to state exactly how much a lender will lend you and at what interest rate and terms. To a seller, this is what they are going to want to see because it shows that a bank is willing to lend you XYZ amount to purchase the home. A lender usually approves the amount for up to 120 days, so from that point you are good to go on your home search.
Recommendation
I think both are great tools to help clients get a good idea of what price range they can look for. I highly recommend before looking at homes and getting serious about putting an offer in on a home to get that pre-approval letter from the lender of your choosing. This is because, most sellers are going to want to see it along with the offer, and if you’re unaware of credit issues that could hinder how much you can afford you have a chance of taking care of it before you fall in love with a home that you are not approved to afford.
Taking on a mortgage can be an overwhelming and exciting process, but assuring that you go through all the right steps to get your mortgage is critical to your home-buying process. If you need more help with navigating the mortgage process of getting pre-approved or pre-qualified let me know here. Or if you’re looking to sell your home let me know!
