Pre-approved or pre-qualification
Pre-approval or Pre-qualification – What’s the difference?
So you are considering a home purchase and there is all this talk about pre-approvals and pre-qualifications. You’re excited and can’t wait to just start looking at houses. Why not look now and worry about what is needed later? There are many reasons to obtain a pre-approval or pre-qualification before house hunting.
First off, getting a pre-approval tells you what size of a mortgage you can qualify for. Buying a home can be frustrating and confusing enough without adding disappointment when you find out you can’t afford the “house of your dreams” after all. Or, you may find out that you qualify for a much larger mortgage than you first thought. Even if a lender feels that you can handle a payment, you must be comfortable with that amount. If not, you may want to reduce your house-shopping budget accordingly.
Obtaining a pre-approval also demonstrates to a seller that you are a serious buyer. Your bid will be taken more seriously than other potential buyers who are not pre-approved.
As part of the pre-approval and pre-qualification process, your mortgage consultant will also run your credit report, which may turn up an error, or problem that could cause you difficulty in obtaining credit. Handling this matter before writing an offer gives you the opportunity to make corrections and not lose a great property simply because your credit report has an error on it.
A pre-qualification is a determination on whether you would likely qualify for credit based on income and debt levels, assets and a credit check. This estimation can be accomplished either in person or with a simple telephone call. A pre-approval is a more complete process where the borrower actually meets with the loan consultant and supplies Income tax returns, pay stubs and any other documentation the loan consultant deems necessary. Details such as the amount of cash required to close are also determined and bank statements are provided. Resources are verified and the loan file is ready for underwriting. A pre-approval takes the guesswork out of buying. There is a firm figure that you and the seller can work with in confidence. Securing the commitment from a mortgage company is much closer to reality with a pre-approval than with a pre-qualification.
As a prospective buyer, you should contact a reputable broker. You will be advised whether or not you need to start off with a pre-qualification or go straight to a pre-approval status. In either case, that lending professional can help you figure out very closely the interest rate your credit score entitles you to, how much you are likely to be able to borrow and how much cash you may need for a down payment and closing costs. All this work up front can save you from some nasty surprises later.
Katherine Albano is the Sales Manager and Senior Loan Officer at Riverview Mortgage Corp. For any questions regarding mortgages, please call Kathy at 585-321-0020 ext. 211 or 585-303-3274. Or e-mail her at kathyalbano@frontiernet.net
Riverview Mortgage is a Registered New York State Mortgage Broker with the NYS Banking Department. Loans arranged through Third Party Lenders.