Homebuyers who are not paying in cash will hear two terms rather frequently when shopping for a new home. These two terms are pre-qualified and pre-approved, and both are related to the process of applying for and securing a loan through a lender. While some may use the words interchangeably, they have two entirely different meanings. Before searching for a home on the University Hills real estate market, it’s a good idea to learn what it means to be pre-qualified and pre-approved.
Getting pre-qualified is the first step that all potential homebuyers will take when trying to obtain a mortgage. Before pre-qualifying someone for a loan, the lender will view the borrower’s debts, assets, and income. Then, the lender will tell the borrower how much he will be approved to borrow. The borrower will then use this information to set a budget. For example, if the borrower has been pre-qualified to receive a $200,000 mortgage and he has $20,000 to put towards the down payment, he now knows that he cannot afford homes that are over $220,000. Learn more about pre-qualified vs. pre-approved: what’s the difference
Getting pre-approved for a loan is the next step in the process. Buyers must fill out a mortgage application, pay a small application fee, and allow the lender to run a credit check. This is an important difference between the two processes. The lender does not run a credit check before pre-qualifying a buyer, but this must be done during the pre-approval process.
In the pre-qualification process, the lender will trust that the buyer is providing accurate information. But in the pre-approval process, the lender will need to see documentation that shows their income, debts, and assets. For example, the lender may ask the buyer to provide tax returns, pay stubs, and credit card statements.
The lender will tell you what type of loan you have been approved for after carefully reviewing your documentation. You will learn the exact loan amount that you qualify for as well as the interest rate that the lender can offer to you. Most borrowers will then ask the lender to provide them with proof that they have been pre-approved for a mortgage. If you make an offer on a home, this document can be shown to the seller as proof that you are serious about the deal. A lot of deals fall through because the buyer is unable to secure financing, but having this pre-approval letter shows the seller that financing will not be an issue.
Sellers know that getting pre-qualified is much easier than getting pre-approved, which is why a pre-qualification letter does not carry as much weight as a pre-approval letter. If you want the real estate transaction to go as smoothly as possible, it’s strongly recommended that you get pre-approved before shopping for a home.
Now that you know the difference between these two important terms, are you ready to find the home of your dreams? If so, get in touch with the professionals. Contact Elevation Realty
to be connected to a team of experienced real estate experts ready to help you on your home buying or selling journey.