Mortgage Pre-Approval versus Pre-Qualification
If you are starting to hunt for a new home, you should know the difference between being pre-qualified and being pre-approved.
If you want to find the home of your dreams, you need to understand all of the steps to take in order to secure that perfect property when you find it.
Pre-qualification does not mean that you have been approved for a loan, but it is an important component to the purchase of a home. Understand what you can afford before you look. Pre-qualification will save you time and ultimately money. First though you need to find a lender or a broker to help you determine if you are pre-qualified.
A good mortgage professional can assist you in determining your qualification. You should discuss your financial situation with your lender, but don't withhold any information. Your broker will need to know your yearly household income, assets and liabilities. If you can discuss your finances candidly and determine what you sort of mortgages you can reasonably qualify for, you won't waste anyone's time. This is also true if you are looking at a refinance or a second mortgage. However, pre-qualification isn't that impressive to sellers. It important to you in understanding what you can afford so that you can consider your price range. If you are planning on making an offer, you should have pre-approval.
Pre-approval is a firmer commitment based on more information than pre-qualification. A mortgage broker do a thorough credit investigation to determine your pre-qualification. The credit decision will make a difference in the amount and interest rate you are qualified to receive. Make sure to disclose all financial information that is requested or you could ultimately be refused the loan. Make sure you speak with your broker and understand all the terms as well, otherwise, you may be in for a surprise.
Priscilla A. Harman, president of the Realtor Association of Pioneer Valley in Massachusetts notes that many borrowers are surprised. "It looks really good until they get to the closing and find out costs they weren't told about."
The amount that you are approved for is the underwriting that the lender is willing to approve in order to qualify for a mortgage. Getting pre-approval may give you more bargaining power to negotiate the price of your home. It will also allow you to understand your interest rate and get a rate lock before buying a home. If the seller knows that you are approved for the loan you may have more leverage. If you are educated and prepared, you may find that the home buying process is easy and stress free.