Posted on: 18th Jul, 2009 06:22 am
In the world of real estate transactions, the terms “prequalification†and “preapproval†are often used interchangeably, and this can lead to much confusion. The two mean entirely different things. Learning the difference before heading out to shop for a home can make a major difference in whether the deal ever actually closes.
Prequalification is a very good thing; it provides a wealth of valuable information for a potential borrower. First, it will provide a good snapshot of one’s borrowing power. Also, it is an easy and informal process and, therefore, not time-consuming. However, prequalification is based on unverified, undocumented financial information. It’s not given serious merit by real estate agents or sellers, and there is no indication of a clear commitment by a lender to complete a loan.
On the other hand, preapproval is a much more reliable tool. It provides a borrower with a detailed overview of his buying power. Preapproval is a formal process, and that makes it a bit more difficult to obtain than a prequalification. Income and assets are fully verified with all required documentation. As a result, sellers and real estate agents give a preapproval a great deal of credence. And, of course, obtaining preapproval from a lender demonstrates their willingness to close the deal.
It might take a little more time and effort to obtain a preapproval from your lender, but it’s well worth the effort in the long run. Having a preapproval letter in your pocket will make you a much more confident buyer. With that confidence, you can negotiate from strength, earning the respect and the attention of sellers and real estate agents.
Simply having been preapproved, you’ll be able to concentrate on homes within your specific price range, and you’ll have confidence in being able to arrive at a closing date much more quickly.
What do you need for an effective preapproval? Here’s a laundry list, which while not all-inclusive, will stand you in good stead as you venture forth into the home buying process.
For verification of income, you’ll want to provide your most recent month’s worth of pay stubs along with W2 forms for the past two years. In some cases, two years’ tax returns will be requested. For sources of income such as alimony/child support, Social Security, pension, etc. you’ll be required to provide documentation as well.
To verify your assets, provide the most recent bank and credit union statements for the past two months, along with any IRA, 401K, annuity information. If you plan to use gift money from a relative, let your loan officer know that also.
When reviewing your credit report, your loan officer is going to need to ensure that all debts are paid in an as-agreed fashion. If there are collection accounts, judgments, etc. you’ll be required, for the most part, to pay them in full prior to closing on a loan. Make sure you also provide documentation for any child support or alimony payments you may be required to pay.
Working with a loan officer to be preapproved is not hard work, and it is not intended to be a stressful time. You’ll be given an opportunity to know just where you stand, with confidence that your search for a home will be successful. Don’t settle for prequalifying; get preapproved.
Prequalification is a very good thing; it provides a wealth of valuable information for a potential borrower. First, it will provide a good snapshot of one’s borrowing power. Also, it is an easy and informal process and, therefore, not time-consuming. However, prequalification is based on unverified, undocumented financial information. It’s not given serious merit by real estate agents or sellers, and there is no indication of a clear commitment by a lender to complete a loan.
On the other hand, preapproval is a much more reliable tool. It provides a borrower with a detailed overview of his buying power. Preapproval is a formal process, and that makes it a bit more difficult to obtain than a prequalification. Income and assets are fully verified with all required documentation. As a result, sellers and real estate agents give a preapproval a great deal of credence. And, of course, obtaining preapproval from a lender demonstrates their willingness to close the deal.
It might take a little more time and effort to obtain a preapproval from your lender, but it’s well worth the effort in the long run. Having a preapproval letter in your pocket will make you a much more confident buyer. With that confidence, you can negotiate from strength, earning the respect and the attention of sellers and real estate agents.
Simply having been preapproved, you’ll be able to concentrate on homes within your specific price range, and you’ll have confidence in being able to arrive at a closing date much more quickly.
What do you need for an effective preapproval? Here’s a laundry list, which while not all-inclusive, will stand you in good stead as you venture forth into the home buying process.
For verification of income, you’ll want to provide your most recent month’s worth of pay stubs along with W2 forms for the past two years. In some cases, two years’ tax returns will be requested. For sources of income such as alimony/child support, Social Security, pension, etc. you’ll be required to provide documentation as well.
To verify your assets, provide the most recent bank and credit union statements for the past two months, along with any IRA, 401K, annuity information. If you plan to use gift money from a relative, let your loan officer know that also.
When reviewing your credit report, your loan officer is going to need to ensure that all debts are paid in an as-agreed fashion. If there are collection accounts, judgments, etc. you’ll be required, for the most part, to pay them in full prior to closing on a loan. Make sure you also provide documentation for any child support or alimony payments you may be required to pay.
Working with a loan officer to be preapproved is not hard work, and it is not intended to be a stressful time. You’ll be given an opportunity to know just where you stand, with confidence that your search for a home will be successful. Don’t settle for prequalifying; get preapproved.
well, i can't tell for certain what it is you're asking, but i'll try.
depending on where you live, you are going to find that lenders can offer you a loan with no more than 3.5% down payment (fha loan) or one with zero% down payment (usda loan).
those are the best products out there for low down-payment types, and these are two programs you don't have to have excellent credit to qualify.
depending on where you live, you are going to find that lenders can offer you a loan with no more than 3.5% down payment (fha loan) or one with zero% down payment (usda loan).
those are the best products out there for low down-payment types, and these are two programs you don't have to have excellent credit to qualify.
Thanks for the informative post George.
Has anything changes since last year? Are major lenders charging non-refundable application fees these days before giving pre-approvals?
Has anything changes since last year? Are major lenders charging non-refundable application fees these days before giving pre-approvals?
No, a lender cannot charge application fees up front. The only items they can charge for are third party fees (ie credit reports and appraisals).
Nice to know someone's got your back when it's needed.
It just makes good sense to do the ground work first and know wht your borrowing power is.
A great post - I hope that people read that since one thing that happens with "pre quals" is that people are often diappointed when they don't actually hold much water when there is an actual purchase to be made. There is far too much info that can still be uncovered that disqualifies someone, despite the fact that they "pre -qualified".
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