Buying a home is the biggest financial decision most of us will ever make.
So it is easy to see why having clear and concise information is crucial to ensuring a successful outcome and a low stress experience.
Typically, the first step in the home purchasing process is to secure one of two things: a pre-qualification or a pre-approval from a lender. These are distinct processes, so it is important to understand the difference.
A pre-qualification, acts as a dry run of the loan application process. A lender’s loan consultant can typically pre-qualify you for a home loan in less than an hour. To establish a pre-qualification you will need to complete a mortgage application and authorize a credit report. You should also provide the loan consultant with as much income documentation as possible. A review of the mortgage application, your credit, and your income documentation will determine if you are pre-qualified for a loan. Your loan consultant will then be able to tell you:
- The loan amount you qualify for
- The types of loans you qualify for (i.e. fixed, variable, FHA, VA)
- The sales price on a home you can qualify for
- The current rate and fees for the selected loans
A pre-approval takes pre-qualification one step further. Your loan consultant will compile the information gathered from your credit report and asset/income statements to secure a valid pre-approval. When you become pre-approved you will receive a letter stating that your mortgage is pre-approved. A valid pre-approval is the best tool you can have when shopping for a new home. The key is to ensure that your pre-approval is valid. A pre-approval that is valid has been underwritten by an authorized underwriter or an automated approval system. With a valid pre-approval in hand, all you have to do is find the home you want, have it appraised, and then close your loan.
