Pre-Qualification vs Pre-Approval

Although the terms are often used interchangeably, the difference between a mortgage pre-approval and a pre-qualification is substantial.  One is a valuable tool in the home buying process, the other is only slightly more valuable than the paper it is written on. 

Pre-Qualification is important but is only the first step in the home buying process.  It consists typically of a verbal conversation between a prospective buyer and the loan officer and usually includes a review of your credit report.  The next step, a true pre-approval also requires you to sign an application and send all the supporting documentation required to approve your loan.  Only property specific information (which is not yet known) is left out.  The loan application and supporting documentation is then submitted to an underwriter for approval that is conditional only on the property itself.  As underwriting standards continue to toughen, it is more important than ever to get started on this process before you find your dream home.

A full pre-approval puts you in the driver’s seat when buying a new home, credit and income fully underwritten and approved subject only to the property appraisal.  This type of approval is not offered by all lenders but worth seeking out and investing the extra time and effort in if you are seriously considering buying a home.  Here is what you will need:

Information needed for pre-qualification:

• Full Name(s) and Current Address
• Social Security Number (so a credit report can be run)
• Income and current debt information

We can likely tell you with this information what you will qualify for.

Additional documentation needed for full credit pre-approval:

• Complete mortgage application
• Income if NOT self-employed
  • Paystubs covering most recent 30 day period from all borrowers
  • 2 most recent years w-2s from all borrowers
• Income for self-employed borrowers (25% or greater ownership)
  • Tax returns from 2 most recent years
• Asset statements (covering a 60 day period)
  • Most recent bank and asset statements covering a 60 day period
  • Most recent retirement and investment statement(s)

The Payoff…

Having already worked out any complications in advance, your full credit approval will allow you to shop with confidence and negotiate your best deal for your new home and if necessary a quick closing.  Ask for a full credit pre-approval before you begin your home search and don’t settle for anything less.

Filed under: Mortgage |