Sacramento Area Buyers: Are you pre-approved or merely pre-qualified?
There is a difference, and your offer to purchase the home you want might depend on what the letter from your lender says.
Before I take my buyer clients out to look at homes, I ask them to visit a lender (preferably someone in our area so they will be familiar with all of the grants, special loan packages and programs that are available in the Sacramento area).
If they don't know a good lender, I will recommend a few that they can choose from. I do know some great lenders who work quickly and efficiently and do a good job for my clients. I ask them to get pre-approved for a specific amount so we know that price range for our home search.
They should make an appointment and bring with them all of their financial documents, such as tax returns, pay stubs, bank statements, and information about their debts and bills. Ask the lender when you make the apointment what he or she wants you to bring, and bring it all.
The lender will then review all of the documentation, have you complete a pre-application form and pull a credit report. The information you provide to him will be verified. After considering all of the circumstances, he will provide you with a letter that indicates that you are pre-approved for a loan for $xxx,xxx for the purchase of a home priced up to $xxx,xxx at X%, if nothing changes before close of escrow. This is a pre-approval letter.
Now if you want a pre-qualified letter, you can simply call a lender and give him a few facts on the phone, which he may or may not verify, and he can email or fax the letter to you.
You might be a fast food employee and tell the lender you are in the restaurant business and make $90,000 a year, and the letter you get might be based on those false facts. Some lenders won't provide you with a pre-qualified letter because they feel that there is a good chance you might not be able to close a transaction based on such a letter.
Now imagine for a moment that you are the seller reviewing two offers on your home. One offer is backed up by a letter that says this buyer is pre-approved for a loan to cover the purchase of your home at the offered price. The other offer is for the same amount, but is backed by a pre-qualified letter. Which offer would you prefer? Which transaction is more likely to close?
Especially these days when the inventory of homes for sale is low in the Sacramento area, there is competition for those homes. Make sure you present the strongest offer package you can.
And purely to preserve your own sanity, a pre-approval letter will give you confidence that you can search for homes in a certain price range. Nothing is more heart-breaking than to see a buyer fall in love with a house, and then find out that he can't afford as much as he thought.
Don't place yourself in that place.
Take a little extra time to get pre-approved before going shopping for what is probably the largest purchase of your life.