What is the difference between a pre-qualification and pre-approval for a mortgage loan in Huntsville Al, and why do I need one??
I’m often asked this question by clients that are searching Huntsville Homes for Sale.
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We’ll start on the “pre” mortgage process and go from there!
A Pre-qualification is simply the process of making a determination of how much money a lender is willing to loan. Lenders do have various guidelines so this could change from lender to lender. Generally, the lender is going off of information you provide them verbally and is at times NOT verified. This means you are NOT formally approved...it really is nothing less than a guesstimate, since your employment, income and credit may not have been verified.
A Pre-approval is a bit different. This takes it a step further and is a formal process where the buyer actually provides the lender with documentation of past income tax returns, bank statements, employment history and of course a credit report will be pulled. When having a Pre-approval, you will know what price range to search and what type of loan you are qualified for. An important tip to remember is: Not ALL Huntsville AL homes for sale qualify for a particular loan. Condition and location, single family versus condo’s for sale in Huntsville all have to meet the criteria set by your lender.
The approval is the final step by your mortgage lender. After choosing your home and have an accepted contract, an appraisal will be ordered to make sure your home is actually worth what you have agreed to purchase it for.
Which is better? A pre-approval should give you a leg up with a seller. They will know that in fact, you are a ready, willing and ABLE buyer. That goes a long way these days! We rarely see multiple offer situations arise here in Huntsville Al, but if that were to happen, the vast majority of times a seller will go with a buyer that IS pre-approved, versus “not quite sure”.
I always recommend getting at least 2 good faith estimates from lenders. Each mortgage lender is different and could charge fees that others do not. There is much more to consider when applying for a Huntsville home loan, other than JUST the interest rate. A good Realtor in Huntsville AL will sit down with you and go over these estimates, line by line to ensure you are getting the best deal possible. Also, many online companies are known to do the old bait and switch routine. Take your Huntsville Realtor’s advice and check with the lenders they are familiar with as well. It could make a big difference in your home buying experience as well as your pocket book!
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