There’s a great deal to learn when you are starting out in your home buying journey. From notions like earnest money to closing costs, it is a lot to take in through a really short period. However, of all the things to understand, clearly understanding the difference between being pre-qualified and pre-approved for your mortgage is one of the most important.
Why Your Mortgage Application Status Matters
It has always been an incredible idea to deliver a solid offer to the negotiating table when it comes to real estate, but it’s even more vital when the market is short on inventory and long on buyers.
If you’re in a multiple offer situation (and sometimes, even if you’re not), the sellers are likely to weigh the various offers they get to decide if they believe your offer is enough to bring in what they will need to market their home, as well as considering how powerful an offer it is.
A powerful offer is one that has a great deal of the obstacles already removed. For example, if you want to sell your house before you can close on the one you’re making an offer on, this might be thought of as a weak offer for some sellers.
Now a weak offer does not mean a bad offer, necessarily; it is simply an offer that looks like it could be tricky to actually get to the closing table. The risk versus reward is too significant. This is why having the perfect type of mortgage application status plays in your favor when it comes to negotiation.
Mortgage Pre-Qualification Versus Mortgage Pre-Approval
When you meet with a lender for the first time, they generally ask some probing questions about your income and assets, as well as your expenses and credit file. They’re not just being nosy; that lender is attempting to help figure out just how much home you can qualify for and what programs may be best for your financial picture.
Sometimes, these lenders will send you elsewhere because their banks or partner lending institutions simply can’t help you, but in a lot of cases they’ll create something called a pre-qualification letter.
Pre-qualification goes largely by your word about your income and expenses, and is not a promise to lend. It’s simply a hypothetical among a list of hypotheticals. If you do in fact make this much money, your credit is as assumed, the house you choose lines up using these guidelines, and rates don’t change dramatically, you need to be able to purchase this considerably house. You can see how that might be a bit dodgy for a seller to hang all their hopes on.
A pre-approval, on the other hand, shows that you’ve gone through the additional steps to reach the highest degree of mortgage approval you can get without actually having a house procured (the house that you select also figures to the final approval, but just the way that it figures is based upon the loan program).
For a pre-approval, you ought to provide income documents, permission for the lender to pull a full credit report, and details about any assets or liabilities you hold that aren’t contained on your credit file.
A pre-approval isn’t instant; it demands more review, and you’ll need to settle on a financing program to be approved for. However, doing all this extra work shows potential sellers that you’re already putting in a great deal of effort to ensure you can actually close when the day comes, and that you’re eager to move the process along as quickly as possible. That’s the type of buyer a seller wants to see!