Pre-Qualification vs. Home Loan Pre-Approval
A pre-qualification letter simply states the amount of money your mortgage lender believes you’ll be able to borrow based on your income, debts and assets. However, no actual documentation is used to back the pre-qualification letter, so it doesn’t hold as much credibility as a home loan pre-approval letter when making an offer on a home.
A home loan pre-approval letter is actually based on verified information. As a home buyer, you are required to submit specific financial documents to your mortgage lender; these documents often include tax returns, bank statements, W2s and pay stubs. Once these documents are thoroughly reviewed and a credit check is completed, your mortgage lender can provide you with a specific dollar amount you’ve been pre-approved to borrow when buying a home.
Benefits of a Home Loan Pre-Approval Letter
Obtaining a pre-approval letter when buying a home offers two main benefits. When you’re searching homes for sale, you’ll know your target price range — which means you won’t fall in love with a house and then suffer disappointment when you realize you can’t afford it. A pre-approval letter usually helps speed the process of buying a home. Submitting a pre-approval letter along with your offer to buy a home shows your Realtor, the seller’s Realtor and the sellers themselves that you are a credible and serious buyer.
How To Get Pre-Approved For A Home Loan
1. Find a mortgage lender.
2. Complete a mortgage application.
3. Supply your lender with the required pre-approval documents. Be prepared to dig up various financial documents from the last two years.
4. Show proof of your assets. Your lender will want to see that you have funds available for the down payment and closing costs.
5. Authorize the lender to complete a credit check. Your credit score plays a big role in determining mortgage interest rates, down payment amounts and home loan approvals.
I’m Pre-Approved For A Home Loan, Now What?
Once you’ve obtained a pre-qualification letter or home loan pre-approval letter, be cautious about the way you handle your finances. Follow our 10 Mortgage Commandments to ensure your home buying process goes as smoothly as possible. Even though you’ve been pre-approved, your mortgage lender re-checks your credit profile once the house is under contract and a home appraisal has been completed. If your income or credit profile has significantly changed, your mortgage lender may modify or cancel your original home loan pre-approval.