When you’re buying a home, there is a certain chronological order in the process. Arranging for a mortgage before finding the home you want to buy seems like it would be out of order, but it is to your advantage to take this step prior to making an offer.
There are two terms with which you should be familiar: pre-qualified and pre-approved. The two terms are often used interchangeably, but there is a difference.
What is pre-qualifying and why should you do it?
For pre-qualification, the mortgage professional reviews your finances, credit report and income to make an estimate of the amount for which you would qualify. After reviewing the information, the lender will issue a pre-approval certificate on company letterhead indicating that they have reviewed your finances and the amount of loan which you could qualify for.
Many lenders allow you to pre-qualify over the phone. This is good information to have, of course, because you’ll know the price range of the homes you should be looking for during your search. But remember this … it is not a guarantee of a loan. There still may be issues to resolve and the closing can take several weeks to complete.
Why pre-approval is better.
For a pre-approval, your loan application actually goes through the process of underwriting. The bank commits to lend you up to a certain amount, contingent upon the appraisal and the house qualifying for the loan.
There are two advantages associated with pre-approving for a home loan. First, it is a time saver. The closing process could be completed in one to two weeks when all you only need is an appraisal; while it can take between 30 and 45 days when you have to go through the entire loan process. Secondly, being pre-approved is attractive to sellers, particularly when they need to move quickly. If your offer is close to that of another potential buyer, being pre-approved may convince the seller to accept your offer.
If you have more questions about mortgage financing and shopping for a new home, please contact me. As your real estate professional, I am here to help with all of your home buying or selling needs.