“Why do I need to get Pre-Approved?” is a question we get asked almost every day at My NC Homes when we speak with perspective home buyers. Some tell us "I went online and know I’m qualified". While that might be the case, it's important to understand the differences between Pre-Qualification and Pre-Approval when it comes to the mortgage process.
The Differences Between Pre-Qualification & Pre-Approval
Two often confused terms in the home buying process are a mortgage pre-qualification and a mortgage pre-approval. Even some loan officers and real estate agents will use the terms incorrectly or may not fully understand the difference between the two. If you are looking to buy a home in the Durham/Chapel Hill/Cary area it is critical that you get pre-approved, not just pre-qualified, before you start looking for a home.
Get An Idea With A Pre-Qualification
A mortgage loan pre-qualification is an estimate of how much house you can afford and how much money a lender would be willing to loan you. This typically involves either sitting down with a lender or talking to them on the phone, it’s even possible to do this online without speaking with anyone. You provide them with your basic income, assets, debts, and a rough idea of how much you have for a down payment. The lender would then provide you with a ballpark figure, in writing, of how much he thinks you could afford to pay for a monthly mortgage.
There should be no cost involved and there is no requirement that you in fact go through with the loan. This type of estimate is just helpful in figuring out if buying a home is a realistic option for you, and if so, what a comfortable price range would be for you. What’s important to understand is that in fact none of the information you have provided has been verified, Some pre-qualification processes will check with one of the three big credit reporting agencies.
Get Serious With A Mortgage Pre-Approval
Getting pre-approved is a more involved process and is the step you should take if you are serious about buying a home here in the Triangle. A full pre-approval means that you have tentative commitment from a lender to provide you with a mortgage. For a full pre-approval you will need to provide a lender with actual documentation of your income, assets, and debts. This process may or may not require an application, since the lender will run a tri-merged credit check, plus work to verify all of your employment and financial information.
Again there should be no charge; you aren’t officially applying for a mortgage. Because there’s no charge and because it takes the lender time and money to verify your information, most aren’t in any hurry to do this, preferring to simply pre-qualify you. Once you are pre-approved, the lender will give you a letter of commitment, stating how much money they are willing to loan you along with estimated costs associated with the loan. This places you the buyer in a strategically stronger position.
With a pre-approval in hand real estate agents and sellers will take you much more seriously when they see you have your mortgage funding in place. This is critical in the Triangle area as most likely you will be competing with other buyers for the same property. Being fully pre-approved tells the seller that you are ready to go and that you are a more serious buyer than one that is just pre-qualified.
Being pre-approved also allows you to work with a shorter Due Diligence period and shorter closing date because you have already done all of your homework, making your offer more appealing to a seller. The lender will just need to review the contract, have an appraisal completed, title search done, and finalize the paperwork. In today's market a pre-approval can be the difference between wining and losing a multiple offer situation.
If you are looking to buy, our advice to all of our clients is the same; sit down with a local lender and get pre-approved before you even think about going out to look at homes. If you need help finding a good lender to work with we have a list of excellent folks that we have worked with for years and we would be happy to share that list with you. Send us a message or give us a call at 919.659.5173 for more information.
Posted by Andrew Palumbo on
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