Looking For A Home? Pre-Qualification Basics You Should Know
If you're thinking about buying a house, the mortgage process is probably weighing on your mind. In fact, securing a mortgage can be one of the most challenging parts of buying your first home. Especially in a seller's market, one of the things you should consider is seeking mortgage pre-approval instead of just pre-qualification. Here's a look at what pre-approval is and why it matters.
What's The Difference Between Pre-Qualification And Pre-Approval?
For many people who are just beginning to look for a mortgage, pre-qualification is a term they'll hear quite frequently. The pre-qualification process is a soft assessment, which relies on general information and doesn't include pulling your credit. This process can give you a general idea of what you'd potentially qualify for, but it's subject to change when the lender reviews your bank statements, tax returns, and credit report. Because it's such a generalized step, most sellers don't take pre-qualification seriously.
Pre-approval, on the other hand, is a more extensive process. In order to obtain a pre-approval letter for a mortgage, the lender will evaluate your bank statements, your prior tax returns or W-2s, and your credit report. It doesn't, however, involve the full underwriting process that comes with the final mortgage processing. That being said, a pre-approval is a far more secure status than a pre-qualification.
What Does A Pre-Approval Tell You?
A mortgage pre-approval letter will specify an amount that you've been approved to spend, and clear, specific language that defines this as a pre-approval that's based upon your current debts, income, and credit standing. Any changes in any of these things could affect the final outcome of your loan processing. You'll also be provided with an expiration date for your pre-approval, which is usually around three months. This gives you time to shop for a home on these approval terms.
What Happens When You Find A House?
If you've obtained a mortgage pre-approval and you find a house that you're interested in, you'll put in an offer on the house that's contingent on the appraisal and inspection. Most mortgage lenders won't authorize a mortgage for an amount that's over the home's appraisal. Once you've found a home, gotten an appraisal, and are ready to proceed, your mortgage application will complete the rest of the underwriting process. Provided that nothing has changed with your income or credit status, your mortgage will be fully approved.
These are some of the most important things you should know about mortgage pre-qualification. Talk with a home loan service in your area today for more information.