In our last post, we discussed the advantages of being pre-qualified for a home loan. But what are the advantages to skipping this step altogether, and going straight for pre-approval? Read on to learn more about mortgage pre-approval and the benefits of choosing this route.
What Does It Mean to Be “Pre-Approved?”
Requesting pre-approval for a home loan involves more than that required for pre-qualification. With a pre-approval, the lender performs an evaluation of your financial ability to take on a mortgage, and to what extent. This includes a close look at your income, debts and assets. The financial institution determines the amount of money they’d lend to you based on the documents you provide (financial statements, tax returns, pay stubs, etc.) along with your credit score. You’ll be asked to complete a mortgage application, which often carries a nominal fee.
If all goes well, the lender will then pre-approve you for a mortgage, and provide you with a pre-approval letter. This includes the precise loan amount, up to which you can borrow, and your estimated interest rate.
Benefits of Mortgage Pre-Approval
- Gain an exact idea of the maximum loan amount for which you qualify.
- Give more clout to your interest in a home. Being pre-approved shows the buyer’s agent that you’re serious about purchasing the home he or she represents.
- Increase your chances of a seller accepting your offer, especially during a bidding war. Pre-approval enhances your ability to negotiate on your dream house.
- Minimize time to settlement. Though you’ll still need to complete the mortgage process, you’ll have a head start on the game and decrease the time it takes to close.
In short, pre-approval puts you closer to securing a home loan when compared with pre-qualification, though there are benefits to the latter as well (refer back to our post on mortgage pre-qualification). Perhaps pre-qualification is likened to browsing or “window shopping,” while pre-approval indicates an intent of looking to buy. In either case, it’s always best to do your due diligence and determine the right course of action for you.
The purchase of a new home is equally an exciting and frightening endeavor. Exciting for the obvious reasons, but scary from a financial standpoint. Do you know how much mortgage you can handle, or how much you can reasonably expect to borrow? Getting pre-qualified for a home loan erases a good deal of uncertainty, giving you an accurate idea of your price range and solid ground when it comes to searching for your perfect home.
How Pre-Qualifying for a Mortgage Works to Your Advantage
What does it mean to be “pre-qualified?” With mortgage pre-qualification, a lender provides an estimate of the amount you could borrow, based on financial information you provide. (Note: This typically doesn’t involve submitting bank statements and tax documents, as in a pre-approval process.) Not everyone in the buying market seeks to get pre-qualified for a home loan. But if you’re a first-time buyer or have no general notion of how much you might qualify for, a mortgage pre-qualification is a smart idea.
Being pre-qualified for a home loan offers the following benefits:
- Better Understand Your Goals. Having a general idea of the amount of home loan you can take on gives you greater insight into your financial position. This can help you determine if now is the right time to buy, or whether you should wait until you establish more secure financial footing.
- Quick and Free. The mortgage pre-qualification process is often completed by phone or Internet. There is usually no charge associated with this service.
- Early Understanding of Options. Having a general idea of your financial reach helps you narrow down and understand your mortgage options. The lender with whom you pre-qualify can review and explain the mortgage products that may be right for you.
- Saves Time. When you look within your price range, you won’t waste time browsing properties beyond your budget.
- Know Where to Start. Being pre-qualified gets you started in the right direction. Establishing a relationship with a lender who understands your personal needs and financial abilities is a great way to begin the home buying process.
Keep in mind, mortgage pre-qualification is just a general estimate of the loan amount for which you could potentially be approved. Being pre-qualified for a home loan in no way ensures you’ll be approved for a mortgage. Stay tuned for our next post, which compares and contrasts mortgage pre-qualification vs. pre-approval.