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Pre-Qualification or Pre-Approval, which do you need to buy a home?
Pre-approval or Pre-qual?
For a free Buyers Guide, Email Kathy Torline at KTorline@msn.com
Colorado Springs home buyers should be pre-approved (or at least pre-qualified) for a home loan BEFORE looking at homes for sale.
Not only is it good for you, as you know how much you can afford according to the lender; but, its good for the seller as the buyer can include the “pre-qual” or “pre-approval” letter in with the contract which shows the seller that the buyer is serious enough to obtain the first steps in the lending process.
A Pre-Qualification for a loan is the 1st step toward home buying. It means that a lender has looked briefly at your credit score and income and determined that you have the potential to be approved for a loan.
Recently, a First Time Home Buyer was “pre-qualified” by Company X. These first time home buyers found a home for sale that they loved and we wrote a contract on the house. The contract was accepted and after we had the inspection done and the appraisal came back, I contacted Company X as I had not heard from them. After talking to them, the buyers were told that afternoon that their loan was DENIED.
Can you imagine how these Home Buyers felt at the last minute while preparing to move to their new home; that they had been denied a loan? They were devastated. I called one of the brokers that I have faith in and he saved the day for them. Not all lenders have the experience and knowledge that other lenders have. It is very important to make sure that the buyer understands the importance of a good loan officer who can walk you through the steps and get you into the best loan possible. Talk with your Realtor and get the names of at least three lenders that they have faith in. Call each of them and interview them as they will have direct access to your personal information. Many of the banks and yes, even mortgage brokers have proven in the sub-prime mess that they have not looked out for the best interests of their clients.
Luckily, these Buyers will be closing on their new home at the end of the month.
I sent a home buyer who called wanting to buy a house to a reputable mortgage lender. She didn’t like what she heard, so she called a bank who told her that she qualified for $20,000 more than what the other lender told her. She felt she was ready to move ahead and look at homes for sale. When I asked her for her pre-qual letter, she said she didn’t have one, but the bank told her she was approved for $150,000. I then asked her to contact the bank to get me the letter. She called later to say that they would never have given her approval for that amount. Remember, if its not written down, it means nothing. We’re still looking for her perfect home, but we’re looking at $130,000 not $150,000.
Credit, bank statements, FICO scores, W-2 forms and tax returns need to be analyzed in order to obtain a pre-approval. Anyone that thinks they have a pre-approval without providing those documents has only a pre-qual, not a pre-approval. You cannot buy a house or get a loan without an approval unless you are paying all cash. Even then, you MUST provide bank documentation for the funds that will be used to close.
All of those little calculators on the Internet are simply estimates. They do not give you a clear picture of your house payment. A legitimate mortgage broker will give the buyer a “Good Faith Estimate” which will show all of the costs involved in buying a house. Doesn’t it make sense to know what your house payment will REALLY be and how much money you will have to come up with for closing. That way you can go into closing knowing exactly what you’re signing.
To be a responsible home owner, you must FIRST be a responsible home buyer and that means doing due diligence on obtaining your loan and what you need to do to qualify. Give me a call and I will gladly refer you to some reputable brokers who will be honest and get you pre-approved for a home loan.
You need the best team possible working for you and that includes not just your Realtor but your lender, who will take you step by step through the process and get you pre-approved into something that you can afford. Do you think all those foreclosures are due to buyers not wanting to pay their mortgages? Not by a long shot. Sadly, it was due to some unethical lenders who put their companies pocketbooks before the needs of the borrower and it wound up hurting all of us. The problem is they are still around, so ask your Realtor today, who they would recommend.
In essence, a pre-qualification means that a lender has looked at your credit scores and determined that you have a high enough credit score to qualify for a loan and will give you a letter stating that fact. A pre-approval means that the lender has looked at all your documentation required in order to purchase a home. In other words, a pre-qualification can be used to show potential sellers that you should qualify, but a pre-approval goes to the next level and shows the sellers that barring any unforeseen circumstances, you will qualify. If you can get all the paperwork done before starting your search, you can go to the seller with a stronger contract, especially if there’s more than one contract on the home you love.
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