3 TERMS YOU WILL WANT TO KNOW WHEN YOUR LOOKING FOR A HOME MORTGAGE LOAN
These three terms get tossed around, pre-qualify (or pre-qualified), pre-approved (pre-approval) and more recently credit approval. What is the true difference, why does it matter which term you use when calling a lender or even discussing with others in conversation?
There really is a distinct difference in these terms when it comes to getting a home mortgage loan. Especially when you are purchasing and making an offer on a home. In the offer, your Realtor will present they will also want to include a lender letter. A lender letter states if you have been “pre-qualified”, “pre-approved” or “credit approval”.
Let’s break these down:
Pre-Qualified– This is when a lender will “qualify” you for a loan based off of the verbal information you stated. They may even pull your credit. Based off of the income you disclosed, hours you work, bonus and/or commission you make, funds you have for down payment, etc.
Pre-Approval– This goes one step further from pre-qualifying. The lender will not only have the information you provided verbally but will collect any and all needed documentation to verify. They will review your paystubs, W2’s, tax returns, bank statements, credit report and any other documentation they feel they will need to get you approved for the loan.
Credit Approval– Now, we are going to take this one step further than the pre-approval. The lender will now send all the financial documents they have reviewed and package it to send to the underwriter. “The Underwriter”, this would be a good name for a villain in a movie. Just kidding, but it does sometimes that just sound very intimidating. We all kinda shudder at the thought of an underwriter reviewing our creditability, no matter what our credit circumstances may be. The underwriter typically doesn’t see your file until you are under contract BUT in today’s market, it is of extreme importance to not wait. It is better to have the underwriter give you full credit approval prior to finding the property. You may be asking yourself why. This gives you an advantage over other offers. You have already completed your loan approval. You are as good as a cash buyer.
Now, going back to that lender letter, if you were selling your home, what offer would you be more apt to entertaining and accepting?
Getting pre-qualified may be able to give you an idea of what you can afford BUT it is not recommended to go start making offers on properties. If you are not ready to send in your financials to get pre-approved, then you may need to rethink if you are ready to buy a home or even refinance. Pre-approval is not quite a credit approval, but it is definitely highly suggested in this market over a pre-qualification. If you have the time and align yourself in a good timeframe then you should look to get credit approved. Just to be clear, credit approval is not done for a refinance, only a home purchase.
If you have any questions or would like to discuss, give us a call.