Are you looking for a new home? Are you going to need a mortgage? Once you start thinking about buying a new home, it helps to get your finances in order. Most realtors want you to get a mortgage approval before they start showing you homes. What does that mean? What is the difference between an approval and a pre-qualification?
When you talk to a mortgage lender, you will start with a pre-qualification. Typically you will either apply online or maybe over the phone. Many lenders will talk to you, ask you questions about your income, assets and credit. They may give you some basic numbers but without pulling a credit report and seeing income and asset documentation, it’s just a pre-qualification. It means they have not pulled your credit, they have not run your file through an underwriting system. It’s basically just a rough idea of what they think you will be approved for. If a lender tells you that you are pre-qualifed for a specific dollar amount, it doesn’t mean your loan is approved. It just gives you an idea of programs and possible numbers that you may be able qualify for.
A mortgage pre-approval means that the lender has pulled your credit report, received income documents from you such as paystubs and w2’s. They have also reviewed your assets to know what you have available for closing. They have run your file through an underwriting system such as Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Prospector. They may still need to verify some things, but the income and assets have been reviewed. Your lender will give you a letter that specifies the loan amount, interest rate, terms of the loan. There will be conditions on the approval – things like an appraisal and title work – we don’t have a purchase agreement, so we can’t order those items. Once you have written your purchase agreement, the lender will get title work, appraisal and any other missing items. Then the file goes to an underwriter for the final approval.
When you are writing a purchase agreement, you want to have a mortgage approval. Realtors want to know that your file has been reviewed and been through some type of underwriting. They want to know that your lender has looked at income and assets. If you present a “pre-qual” letter with your offer and someone else presents a “pre-approval” letter, the other party stands a much better chance of getting that home.
You can speed up the process of your approval by providing your lender with your income and asset information. Give them your paystubs, w’2s, bank statements and even tax returns. That way your lender has everything they need to move forward. The more prepared you are, the faster your approval process will be.
If you are ready to move forward and find a new home, contact your lender and let them know. Homes are still moving fast, so you want to be ready to go with a mortgage approval so you don’t lose the home of your dreams!
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants, Inc., An Equal Housing Lender, NMLS#150953 – Email – Website
