MORTGAGE QUALIFY VS APPROVAL
Looking to get pre-qualified for a mortgage? Or wait, should you get pre-approved instead? If you are like most people, you find the terms confusing.
Buyers searching for a new home usually choose a realtor to work with; one who listens to what the buyer is looking for and finds them several prospective homes to visit. Before the realtor can find the right house he or she usually likes to know what the buyer can afford, sometimes the realtor will ask if the buyers have been “pre-approved” and for how much, and others may ask the same question but use the words “pre-qualified”.
Not knowing the difference between the two could cost you your new home! This post will guide you through what you need to know when it comes to the differences between the two.
Pre-Approved Mortgage: High Commitment From Lender
Simply put, a pre-approval is based on the home buyer’s 1) gross annual income, 2) credit history and 3) current debts outstanding and provides the lender with enough details to make a higher commitment with the borrower.
A mortgage agent starts by taking all information into consideration, calculates debt ratios and reviews the credit history of the borrower. Debt ratios tell us how much a client can afford, credit history tells us over time how well a client pays on their bills and if there is anything derogatory that can affect the mortgage rate.
Most mortgage agents will have a good idea at this point whether a client should proceed with a lender pre approval or if the borrower should seek a co-signer/co-applicant, lesser mortgage amount, A, B or C lender, etc.
By this time an agent may gather supporting documents: pay stub, tax notice of assessment, ID, etc., and process the application for a lender to stamp their pre-approval on the file and in some cases lock in a rate for up to 120 days.
Obviously, this puts the buyer in an advantageous position when dealing with a seller, as he or she will know the buyer is much closer to obtaining an actual mortgage with a lender.
With a pre-approved mortgage, the buyer receives a “conditional commitment” in writing for a loan amount, allowing home buyers to shop for a home at or below the pre-approved price level. Please keep in mind however that a pre-approval should never to be considered a final approval, only when an offer is signed and forwarded to the lender is the deal “live”. The lender reviews the file in greater depth for a final approval. Assuming no surprises pop up during this review period the mortgage is approved and buyer now has committed financing.
Pre-Qualified Mortgage: Lower Commitment From Lender
A pre-qualification typically comes before a pre-approval. It allows the buyer to discuss their needs regarding their mortgage without a detailed analysis of a credit report or an in-depth look at the buyers’ ability to purchase a home.
A pre-qualification is similar to a pre-approval in that the buyer has an idea of price range for a home, but supporting documents are not gathered. An application may be taken with information being as close to accurate as possible. Debt ratios and mortgage amount will be provided by estimate and for information purposes only. Clients who are confident in their credit history, income and debts, and don’t want their credit ran just yet, are usually comfortable with a pre-qualification. * **
- *A Mortgage BROKER will run your credit ONE time only and shop all Lending Institutes for the best rates and mortgages to suit your specific needs. Think of a Mortgage BROKER as a buffer between you and the Lending Institutes. By fixing any problems that may come up before applying for your mortgage of your choice is the best way to avoid the possibility of being TURNED DOWN!
- **As a REALTOR® who has worked with Buyers since 1988, I have learned from experience that making it mandatory for clients to take the step of getting pre-qualified in writing from a Mortgage Broker. It is the best practice for everyone involved in the buying process from the beginning (going out to view homes) to the end (the Offer process).