There are a lot of terms to learn when you’re starting out on your home buying journey. From concepts like earnest money to closing costs, it can be a lot to learn in a short amount of time. But understanding the difference between being pre-qualified and pre-approved for a mortgage is one of the most important!
It’s always a good idea to bring a strong offer to the table when it comes to purchasing a new home, but it’s even more vital when the market is short on inventory and long on buyers. The market in our area as of today is a textbook example of this. If you’re in a multiple offer situation, the sellers are going to weigh the various offers they receive to decide if they think your offer is enough to bring in what they need to sell their home.
A strong offer is one that has a lot of the “obstacles” already removed from contingency. For example, if you need to sell your house before you can close on the one you’re making an offer on, this might be considered a weak offer for some sellers. A weak offer doesn’t mean a bad offer; it’s simply an offer that looks like it could be tricky to actually get closed. The risk versus reward is too high in cases like this for sellers in markets that are in high demand. This is why having the right kind of mortgage application status plays in your favor when it comes to negotiation.
Pre-Qualification vs Pre-Approval
When you meet with a lender for the first time, they will ask some questions about your income, as well as your expenses and credit. They’re not just being nosy; that lender is trying to help figure out just how much home you can qualify for and what programs might be best for your financial structure. Once the lender has all the information the need they’ll produce something called a pre-qualification letter.
Pre-qualification goes by your word about your income and expenses, and is not a promise to lend. It’s simply a hypothetical approval pending all of the details you provide are accurate. If you do in fact make this much money, your credit is as assumed, the house you choose lines up with these guidelines, and rates don’t change dramatically, you should be able to buy. You can see why this can be a bit nerve wracking for some sellers to commit to a contract with just a pre-qualification.
A pre-approval, on the other hand, shows that you’ve gone through additional steps to reach the highest level of mortgage approval without actually having a house under contract. For a pre-approval, you’ll need to provide income documents, the lender will need to pull a full credit report, and they will need details on any assets or liabilities you hold that aren’t included in your credit file.
A pre-approval isn’t as instant as a pre-qualification; it requires more review, and you’ll need to choose a lending program to move forward. However, doing all this extra work shows potential sellers that you’re already putting in a lot of effort to ensure you can actually close, and that you’re eager to move the process along as quickly as possible.
It doesn’t have to be tough, especially if you reach out for recommendations from your realtor on top notch local lenders who have experience with closing homes in your area. You real estate agent is the best place to get a list of lenders who can help you navigate the mortgage waters. These professionals can ease the paperwork burden and help streamline your pre-approval so you’re more than ready to make an offer on a home that you’ll love for years to come.