The terms "pre-qualification" and "pre-approval" is several times used interchangeably. I'll tell you at the outset that is pre-approved for a mortgage is definitely the way to go, but first let's take a look at the pre-qualification. Here is how the pre-qualification works.
You call a mortgage professional and provide your financial base, including: annual income, years of employment, debt, money available for the down payment, credit status and other financial details .
The pre-qualification process is very informal. Your mortgage professional will take your word that the information you provide is correct and that there is no omission of important information.
There is no objective verification during the process of pre-qualification, pre-qualification is based on your word alone. Because your information is not really true, pre-qualification is not worth much.
In fact, many of the best real estate agents refuse to work with clients who are pre-qualified, because so often the purchaser is disqualified in the application process of home loan. It is important to go through the pre-approval process to ensure that your real estate agent will take you seriously as a buyer, even if your agent does not need a letter of pre-approval.
The problem with pre-qualification is that the information that you provide to the mortgage broker may not hold up as well as you thought it would. For example, if it is discovered that part of your salary is received as a bonus, this bonus can be excluded from income by lenders. It is also common for borrowers to forget some debt (a boat or medical payment, for example). A large number of borrowers accidentally underestimate the credit card debt, mentioning their VISA but forgetting their American Express, for example.
The credit score is often another obstacle. You might think that you have "perfect" credit, but an error may appear in your credit report that you know nothing. In fact, 25% of credit reports contain errors serious enough to cause consumers to be denied credit. Another potential problem is the down payment money.
If you receive money for your down payment as a gift, it could also be a barrier if the money was in your account within 90 days. The long and short of it is that pre-qualification is just a best estimate.
The only way to be reasonably certain that you will be approved for a home loan is to get pre-approved. It is a big mistake to pick a house based on the simple pre-qualification status. A dozen factors could cause your mortgage application will be rejected.
You may have also spent weekend after weekend looking house in the $ 250,000 range only to find out after an agreement for a $ 235,000 house that you are only qualified for $ 200,000. The reality is that buying a house based on a pre-qualification-thumbs-up can lead to disappointment.
Pre-qualification and can work well for many people. If your job is verifiable for at least two years, your credit flawless and you have no debt or anything out of the ordinary, a phone call pre-qualification from a mortgage broker could be anything you need. However, it is still not as good as to be pre-approved because you lose a main trading chip. Read on to discover how a letter of pre-approval could be your ace in the hole for real estate negotiations.
The most important thing to do before you start shopping for a home is to get a pre-approval letter. Pre-approval allows you to shop with confidence, knowing how much house you can afford from the start.
Even better, a letter of pre-approval is solid gold in the real estate sector. A seller will be more likely to accept your offer, because they know that you can get the necessary financing to make the deal happen.
Get pre-approved can also save you money. Here's how it works. With your pre-approval letter in hand, you make an offer on a house that is below the asking price. Another buyer offers asking price, but the buyer is not pre-approved. The agent of the salesman encourages the seller to take any offer, knowing how many times buyers who are not pre-approved are unable to obtain financing, even if they take a lot at home. The seller accepts your offer and you have saved a few thousand dollars, getting the house for less than what the other buyer was willing to pay. Pre-approval gives you a status along with a cash buyer. A letter of approval means negotiating weight.
So what is involved to get pre-approved? Pre-approval is different from pre-qualification in that your financial information is verified by your lender. Your credit is pulled, employment confirmed and you produce important documents, such as pay stubs and W-2 forms. Your application is then submitted to the lender for approval.
If you plan to buy a house, you'll have to go through this process anyway, you might as well do away with. In addition to knowing exactly how much house you can afford and ensure a chip of negotiation, pre-approval also saves you from running around like a chicken with your head cut off trying to gather all your documents at the last minute to meet the closing date. Pre-approval is really all upside and no downside.
Once you are pre-approved, you will receive a letter of pre-approval. Make sure you let your broker know that you wish to receive a letter of approval from the lender. You can submit this letter in your written offer when you bid for a piece of real estate. Other than a nominal charge to pull your credit, mortgage brokers good does not charge for pre-approval.
It is important to remember, however, that pre-approval does not guarantee that the lender will finance your loan. If the assessment comes back too low or you mess up your credit after pre-approved, the lender might interest rates or refuse your application altogether.
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