1 Aug

In todays market it is important to have good preparation of all aspects of buying a home.  Understanding some simple terms and what they mean to you, and the seller when you are purchasing a home is very important.

You need to know the difference in being pre-qualified for a mortgage and being pre-approved for a home loan.  Misusing these terms can mean acceptance or denial of an offer.

Getting pre-qualified is the initial step  in the mortgage process, and it’s generally fairly simple. You supply a bank or  lender with your overall financial picture, including your debt, income and assets.   After evaluating this information, a lender can give you an idea of the mortgage  amount for which you qualify. Pre-qualification can be done over the phone or on  the internet, and there is usually no cost involved. Loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a  home.

The initial pre-qualification step allows you to  discuss any goals or needs you may have regarding your mortgage with your  lender. At this point, a lender can explain your various mortgage options and  recommend the type that might be best suited to your situation.

Because it’s a quick  procedure, and based only on the information you provide to the lender, your  pre-qualified amount is not a sure thing; it’s just the amount for which you  might expect to be approved. For this reason, a pre-qualified buyer doesn’t  carry the same weight as a pre-approved buyer who has been more thoroughly  investigated.

Getting pre-approved is the next step, and  it tends to be much more involved. You’ll complete an official mortgage  application, and then supply the lender  with the necessary documentation to perform an extensive check on your financial background and current credit rating.  From this,  the lender can tell you the specific mortgage amount for which you are approved.  You’ll also have a better idea of the  interest rate you will be charged on the loan and, in some cases, you might be  able to lock-in a specific rate.  With  pre-approval, you will receive a conditional commitment in writing for an exact  loan amount, allowing you to look for a home at or below that price level.  Obviously, this puts you at an advantage when dealing with a potential seller,  as he or she will know you’re one step closer to obtaining an actual mortgage.

The other advantage of completing both of these steps –  pre-qualification and pre-approval – before you start to look for a  home is that you’ll know in advance how much you can afford. This way, you don’t  waste time with guessing or looking at properties that are beyond your means.  Getting pre-approved for a mortgage also enables you to move quickly when you  find the perfect place. When you make an offer, it won’t be contingent on  obtaining financing, which can save you valuable time. In a competitive market,  this lets the seller know that your offer is serious – and could prevent you  from losing out to another potential buyer who already has financing arranged.

Last Word

If you are interested in purchasing a new home, we can help you find a mortgage lender to help you get Pre-qualified and Pre-approved.

Information provided by Intero Real Estate Services


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