Working in real estate, I learned that the business has only one constant: that it is ever changing. Mortgage and purchase guidelines rarely remain the same for any length of time. Smart shoppers want to know how much they can spend before purchasing big-ticket items like homes. To gather this information, the first place buyer’s visit is a mortgage calculator or an online form offering a pre-qualification. From there, he believes the approval given, and buying a home is the next logical step. They would be wrong.
A pre-qualification is little more than an estimate. Some websites only ask for a buyer’s income, using an uncomplicated algorithm to factor an “approval” amount. Other websites are more in depth, asking the buyer for additional information like current debt loads and estimated credit worthiness. The key word to anything that has to do with a pre-qualification, however, is “estimate”. Determining final purchasing capacity is much more complicated than plugging in a few numbers on a website.
What is a pre-qualification good for then?
A pre-qualification is a marvelous piece of data for buyers who are six months or longer from making a home purchase. It gives an “idea” of affordability and plants the seeds for saving the required amount to cover the expenses that go along with a home purchase. For buyers who are more than several months out, a pre-qualification is a wonderful place to start.
A pre-approval is a letter direct from a mortgage company that certifies a buyer’s income, debt and credit was reviewed and they are capable of purchasing a property for a preset amount. Before receiving a pre-approval letter, a buyer must complete a mortgage application, provide proof of income and sign off for a lender to pull his credit. The process requires much more scrutiny in comparison to a pre-qualification, but is a requirement before a property purchase. Pre-approval are also a standard requirement of the best real estate agents for a consumer to have in place before going shopping for property. It is pertinent to note that pre-approval figures usually differ from pre-qualified figures, due to the enhanced lender scrutiny, and are generally for a lesser amount.
When should I get a pre-approval?
Have a pre-approval letter when you are ready to make a home purchase, even before getting in the car to preview your first property. Talk to a real estate professional about a referral to a reputable mortgage provider. Pre-approvals are issued in as little as 24 – 48 hours from the date of application, depending on how quickly you provide the loan officer with documentation verifying income and a complete mortgage application.
More from this Contributor:
The 5 Things Every First Time Homebuyer Should Know
The 3 Major Home Buying Mistakes to Avoid
Buyer’s Advice: The Facts