Difference Between Prequalification and Preapproval
The Road to Homeownership knowing the Difference Between Prequalification and Preapproval, in this Real Estate environment some sellers are asking for proof of Funds or a Prequalification Letter even before they let you in to see the home.
It is important to at the very least get a PQ letter or "Pre-qualification Letter" so that when you submit an offer to purchase a home the seller will seriously consider it.
One surefire way to reduce stress during the process of home buying is to seek pre-approval, applying for a loan before finding a house. The loan agent assembles a credit package that includes a loan application, credit report, income and asset information, and supporting documentation. These documents are then submitted to prospective lenders who underwrite the file, issuing credit approval or denial.
Buyers who are pre-approved are taken more seriously than their pre-qualified counterparts. Pre-qualification is not a loan commitment from a lending institution; it is only a loan agent’s opinion that you will be able to obtain financing. Verifications are not usually made so formal approval is not issued. These days, virtually anyone can achieve pre-qual status.
Pre-approval, on the other hand, signifies that the lender has taken the application through a rigorous procedure. So, buyers with pre-approval status can basically write their own ticket.
Benefits of a Mortgage Preapproval
1. If you make an offer on a home and then apply for a loan, you are at the lender’s mercy. He sets the interest rate and points, aware that you do not have time to shop around.
2. Understanding the breadth of your financial reach will save the time spent looking at houses you can’t afford.
3. Shopping for a loan allows you to settle on a house payment that fits your lifestyle. If you rely on your lender to tell you what you can afford, you may end up with a high mortgage payment. Most people can qualify for more than they would feel comfortable paying.
4. Having a pre-approval letter from a lender gives you an edge in a situation where multiple offers have been made on a house.
5. Preapproved buyers can generally close escrow more quickly. Once you submit your credit package, most of the legwork has already been done.
Remember, neither pre-approval nor pre-qualification are absolute loan commitments. Lenders must still assess property appraisals, verify information, and, in many cases, verify credit before funding the loan.
What Documents does the Mortgage Broker needs from me to change it from Prequalification to Preapproval?
To transition from prequalification to preapproval with your mortgage broker, you'll typically need to provide more detailed documentation to support your financial profile. The exact requirements can vary based on the lender's policies, but here are some common documents your mortgage broker may request:
Proof of Income
Pay stubs covering the past 30 days.
W-2 forms or tax returns for the past two years.
If you're self-employed, profit and loss statements and/or 1099 forms may be required.
Proof of Assets
Bank statements for checking, savings, and investment accounts for the past few months.
Documentation of any other assets you intend to use for the down payment or closing costs.
Employment Verification
Contact information for your employer, sometimes including a verification form that the lender will send to your employer.
Identification
Copies of your driver's license or other government-issued IDs.
Credit History
Authorization for the lender to pull your credit report.
Explanation or documentation for any negative items on your credit report.
Debt Obligations
Information on any outstanding debts such as student loans, auto loans, or credit card balances.
Other Documentation
Any additional documents requested by the lender, which could include explanations for large deposits into your bank accounts, divorce decrees, or other financial documents.
Make sure to provide all requested documents promptly and accurately to expedite the preapproval process. Keep in close communication with your mortgage broker to ensure you understand all requirements and deadlines.
Your Real Estate Agent doesn't have to know the details of your financial situation, it can stay private between you and your Mortgage Broker.
Extremely Important
Usually, the lender wants some additional information from you, they refer to this as satisfying contingencies, make sure you respond to these inquiries right away, you want the Mortgage completely processed a few days before the expiration of the Mortgage Contingency usually 30 to 35 from Accepted Offer and before the Closing Date.
Details on how I'll pay 10% from my Professional Fee Towards your Closing Costs!
Mortgage Brokers recommend that you don't spend on big ticket items that you wait until you buy you home because just before the closing, they will pull another Credit Report, and some people are going to be unpleasantly surprised when they learn that they no longer qualify for the mortgage that they had counted on.
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