One of the first steps when considering purchasing a home or income property is to find out just how much you can afford to invest. There is a big difference between ‘pre-qualified’ and ‘pre-approved’ – and in a fast market, not being pre-approved for a loan could mean the difference between having ones offer accepted or rejected.
Before you go looking for (and falling in love with) a home, you need a realistic idea of what you can afford, make sure your credit is in good shape, and, most importantly, get pre-approved for a mortgage. If you’re unsure where to start, you’re in luck! We know some of the best loan officers around, and working with us means us connections are your connections. Lenders, attorneys, builders, plumbers, electricians, HVAC, audio/video, landscape architects, movers, windows, flooring, painters: we have a big Rolodex full of great people and companies!
Let’s go a bit further into the differences between being pre-qualified and pre-approved:
- Pre-Qualified: Pre-qualification is the initial step in the mortgage process. It is a rough estimate of how much you might be eligible to borrow based on the information you provide to a lender. Typically, you provide basic financial details such as your income, assets, and debts, plus most lenders will request approval to pull your credit report (could be a tri-merge credit report, or they might pull a residential mortgage credit report, also known as a RMCR). The lender evaluates this information and provides an estimate of the loan amount you could potentially qualify for. Pre-qualification is usually done quickly and doesn’t require a deep dive into your credit history or documentation.
Pre-qualification is helpful in giving you an idea of your borrowing potential and can be useful when you’re starting to explore the homebuying process. However, it is not a guarantee that you will receive a loan for that amount or be approved for a mortgage. Pre-qualification is more of an informal assessment.
- Pre-Approved: Pre-approval is a more formal and rigorous process than pre-qualification. It involves a thorough evaluation of your financial background, including a review of your credit report, income verification, and assessment of your overall financial situation. To get pre-approved, you typically need to complete a mortgage application and provide supporting documentation, such as pay stubs, bank statements, and tax returns.
During the pre-approval process, the lender assesses your creditworthiness and determines the specific loan amount you are approved for, as well as the interest rate and other terms. Being pre-approved for a mortgage gives you a more accurate idea of your budget when house hunting, and it demonstrates to sellers that you are a serious buyer.
Pre-approval does not guarantee that you will receive a mortgage, as the property you choose must also meet the lender’s criteria. However, it provides a stronger indication that you are a qualified buyer and enhances your negotiating power when making an offer on a home.
So pre-qualification is an informal estimate of your borrowing potential, while pre-approval is a more comprehensive assessment based on a thorough examination of your financial details. Pre-approval holds more weight and provides a stronger indication of your ability to secure a mortgage – and being pre-approved for a loan carries much more weight when submitting a purchase offer.
There are many, many different types of home loans: Conventional, jumbo, FHA, VA CalFHA, DSCR: you need great agents working for you to find a home and negotiate the best terms and conditions – and you need a great lender to provide the best rates and program(s) that meet your needs.
Questions? We’re easy to reach! Connect via Zoom, send us a message through our contact form, email us, call us at 949.285.1207, shoot us a text. And don’t forget to download our FREE Mobile App.
Bruce Clark & Veronica Ruiz
CalRE #1503471 & 01400361 | Coldwell Banker Realty
949-285-1207 | info@livinginirvinecalifornia.com
Bruce: USMC Veteran
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