If Realtors could have only one wish in this world, it might very well be that they would ask that buyers get pre-approved for loans before beginning a house hunt. Nothing is more frustrating – for real estate agents, home sellers, and people hoping to purchase a new home – than to get to the tail end of the long process and then get turned down because the loan is not approved. But there is a simple way to remedy this situation. Any potential borrower can get pre-qualified and then pre-approved, before ever venturing into the vast arena of real estate shopping, by simply meeting with our knowledgeable mortgage advisor and sharing some information.
Here’s how it works:
Simple Pre-Qualification Process
This is the first step in the loan application process, and can usually be accomplished in a matter of minutes. Some lenders can pre-qualify you over the phone or via email, as long as they have access to a few pieces of financial information.
To pre-qualify, you will most likely be asked for
1) Employment history and income
2) A credit check to determine your credit scores
3) An examination of your existing debts
Based upon the information supplied above, a lender can estimate the maximum mortgage you may qualify for and determine what your monthly mortgage payment will be. This basically means that they have determined approximately how much they can lend you, and estimate that you are qualified to receive a loan up to certain amount of money. For instance, they might give you a letter saying that you have been pre-qualified to borrow up to $200,000.
Armed with this support from the lender, you can approach a seller, and the seller will have confidence that you are able to back up your purchase offer with funds, in a reasonable amount of time. By dealing with you, the seller knows that they won’t run the risk of taking their house off the market only to have the deal fall apart later.
What is the difference between a Pre-Qualification and Pre-Approval?
If you want to up the ante, you can get pre-approved. The reason is that you are actually applying for a loan, and the lender will verify your paperwork and complete a background research. The upside of this step is that not only are you given a letter saying that you qualify for a possible loan, but also the actual loan is approved and ready to go.
With pre-approval you know exactly how much you will be able to borrow, and you’ll have a general idea of how much the interest rate, monthly payment, and closing costs will be if you decide to take the loan. Whereas pre-qualification is a commitment to do business with you, pre-approval is more or less a rock solid guarantee that your loan is approved and the funds are available upon your request.
If you approach a seller with pre-approval, your chances of getting the house are greatly improved. Even if other buyers offer slightly more money, the seller will view your offer as a sure bet.
Unless the competing offers are backed up by pre-approval or cold cash, you have the tactical advantage in a competitive market, and Realtors all know that the offer that can “show me the money” usually gets accepted.
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