Pre-Qualification Vs. Pre-Approved
One of the most important steps, and usually the first, during the home buying process is obtaining financing.
There are many different types of mortgages available.
What is a Pre-Qualification?
A mortgage pre-qualification can be best described as a prediction on the amount a buyer can borrow. In many cases, a pre-qualification is only as good as the piece of paper it is written on. Many lenders will ask a potential borrower about their incomes, debts, and other assets and use what they are told to issue a pre-qualification. Some lenders will pull a credit report but some will not. This often can lead to surprises in the future once a buyer goes to formally apply for their mortgage.
What is a Pre-Approval?
A mortgage pre-approval is when a lender gives their written commitment to a potential borrower. The mortgage pre-approval process is one in which a lender will obtain from the potential borrower their bank statements, tax returns for the past several years, verify their employment, and pull a tri-merge credit report. This process does not have to take a substantial amount of time, however, does take a little more time than a pre-qualification, however, the extra time is time well spent.
It’s important to understand once a mortgage pre-approval is issued, there are still a handful of conditions that must be met before the lender is going to release the funds. The most common condition in a mortgage pre-approval is that the buyer finds a property and a satisfactory appraisal is done on the property. This means the subject property must be worth what the buyer and seller agree to and also there are no bank required repairs. Other possible conditions in a mortgage pre-approval can include an acceptable homeowner insurance binder, continued creditworthiness, and in some cases, depending on the financing, proof of an acceptable home inspection.
You should get pre-approved before you start looking at properties to ensure you are looking in a price range you can afford this prevents serious disappointments later – you don’t want to fall in love with a home only to find out you can’t get a loan.
Whether buying your first home or moving up to your dream home, knowing your options will make the mortgage process easier. Your dream home may already be within your reach.
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