Kim & Bill were ready to find their first home. After making a few quick phone calls, they received an informal pre-qualification to go ahead shop for homes. Their imagination had been working overtime and the picture of their first home was clear in their mind. They could imagine the perfect neighborhood, the most darling little house with the greatest backyard; their new home everything they ever wanted. They invested a couple hundred hours finding their little treasure, spent several hundred dollars on fees and property inspections, took a deep breath, and placed an offer. They had their heart is so set on the home that they began telling their friends the new address, and set a date for their house warming party.
And then the bank calls with this little tidbit of information - We are sorry but your mortgage application has been denied!!!
Kim & Bill could have saved themselves from this heartache if they would have been formally PRE-APPROVED. It is so important to understand the difference between a pre-qualification and a pre-approval... In fact, it is highly recommend you get a written Pre-Approval Letter before you go any further in the home-buying process.
Let's take a look at the differences . . .
What is pre-approval?
It's basically a quick-and-dirty look from a lending institution at your creditworthiness. With a pre-approval letter in your hand, you're immediately in a stronger negotiating position with any seller, not to mention the peace of mind knowing that when you get the offer accepted, you are likely to get the keys to your new home...
But be aware that there are two types of "pre" letters:
- Pre-qualification is an informal agreement between you and your lender. The bank gives their opinion on how much they think they will be able to lend to you based on iinformation that you have provided to them. Your bank doesn't do any background check s at this point. It relies solely on you portraying an accurate picture of your circumstances. Pre-qualification is more like a friendly handshake, and once material facts are reviewed, the lender can decide not to give you the loan based upon their review of your official iinformation. This is the mistake Kim & Bill made....
- Pre-approval is more serious. The bank will actually check your credit history, employment information, assets, and liabilities. The only thing they won't check is the property that you plan to buy, because, of course, you haven't found it yet! We highly recommend that you get a pre-approval BEFORE you begin physically looking at homes. It will put your mind at ease while you search for your new home and make the entire experience much less worrisome. Beware of lenders who charge for a pre-approval. A reputable mortgage lender is happy to spend time with you to review the process and answer any questions you may have.
Getting pre-qualified simply indicates that you have told a lender your income level and your debt and credit iinformation, and the lender has estimated what you can afford; Opposed to a Pre-approval, which is an in-depth review of your income, assets, debt to income ratios and credit. A Pre-Approval will provide you with peace of mind when making an offer on your new home.
I hope this iinformation has been helpful. If you have any questions about this process, please feel free to give me call or shoot me an email. I am here to assist you and help make your dream of home ownership a reality.....
Buying a home carries certain levels of stress, but financing should not be one of the stresses. Do yourself a favor and spend some time with a Mortgage Planner BEFORE you go looking for that perfect little home.