The terms pre-approval and pre-qualification appear interchangeable. But remember they are not, and their definitions and requirements differ. Here we will look at the meaning of both terms and understand what differentiatesthem from each other. This will help you move through the home loan comparison process in a more methodical manner.
What is Pre-qualification?
Ahome loan comparison or search for a home should ideally start with finding out the loan amount you are qualified for, from a lender. This analysis may not take more than 10 to 20 minutes and involves no costs and no commitment. You can enquire personally by meeting a loan officer, call him on phone or fill a form online – a facility used by many.
While you do not need to provide any documentation, you have to submit basic information such as your income, credit score and any debts etc. This enables the lender to provide you a ballpark figure of the amount you can borrow and the maximum monthly mortgage payment. This gives you a rough estimate of the price range to look for while buying a home.
What is Pre-approval?
Once your pre-qualification is established, pre-approval is the next step. This is information and documentation-intensive and you’ll need the helpof a loan officer. You will need to put together quite a few documents like your bank statements, pay stubs, tax returns and any other documents asked by the lender.
The loan officer will analyseyour credit history by obtaining your credit reports and look at your financialsituation in general. Once all your information is collated and reviewed, the loan officer will provide you witha pre-approval letter stating your borrowing limit. This letter tells the seller that you are serious about buying a house and are creditworthy. Naturally,it gives you an edge against other buyers.
There are some important precautions you need to take till your approval letter gets translated into an actual loan. If you make any large purchases or incur debts, it will impact your pre-approval amount adversely. Pre-approval is not a final approval.
When you make an offer on a home and the offer gets accepted, the loan has to pass through the stages of processing and underwriting to reach final approval. When the final approval is granted the loan amount is released. Thus pre-approval is important as it speeds up the home buying process and significantly improves the chances of you getting the home of your dreams.
If you want to know more, don’t hesitate to contact us at home loan comparison