Buying a home is something you will never forget. It’s important to make it a positive experience. This can be done by not only working with the right real estate team, but also understanding the process. While home buying can be complex, a few simple guidelines can help determine if it’s the right time. One thing most first time home buyers are not aware of is the difference between pre-qualification and pre-approval. While these terms are sometimes used interchangeably they are not the same. They sound similar but they are different processes with different purposes.
Pre-approval is a written commitment from a lender. You would receive this after underwriting, where your income, debt, and savings are examined. This process is more formal. You are expected to provide your tax returns, bank statements, W2’s, and other documentation requested. Once this is complete you’ll have a bankable loan to work while searching for a home. This is extremely beneficial, it will allow you to determine the down payment, loan program, and monthly payment best for you. Once the process is complete, you’ll receive a letter from your lender. This is going to help you appear as a strong buyer when making an offer.
What is pre-qualification?
Pre-qualification is based off one phone call. Lenders will provide an estimate of your potential buying power based on your income, debt, and sometimes a credit check. This is nothing more than a quick check to see if you would qualify under their guidelines. Typically, you’re not required to provide any documentation. It is important to know, this is not a promise for a loan.
Therefore, when serious about buying a home, you always want to get pre-approved. Pre-qualification is not reliable or bankable when placing an offer. It does not allow you to appear as a strong buyer. This can delay the buying process. Even in slow markets, pre-approval will help complete the process with less stress.