Pre-Qualification vs. Pre-Approval
When you hear Pre-Qualification and Pre-Approval, you may think the terms are interchangeable, but they have different meanings when it comes to the home buying process.
Here’s what you need to know:
Pre-Qualification A best guess of what you can possible afford Can be based off of a verbal statement of income May not always be reliable
Pre-Approval An actual estimate of how much you can afford Has been verified by an underwriter through documentation Significantly more reliable
While a Pre-Qualification may get you started thinking about your options, a Pre-Approval will tell you exactly what you can afford.
Why Pre-Approval Matters
The first step in any home search is finding out exactly how much home you can afford and securing the financing to make the purchase. While you can get a rough estimate through Pre-Qualification taking the extra step to obtain Pre-Approval will give you some added advantages.
Pre-Approval helps you:
Understand your financial condition Know exactly how much home you can afford before you begin your home search Strengthen your purchasing power when making an offer
When you find a home you love and are ready to make an offer, your mortgage Pre-Approval lets the seller know that you’re serious and fully prepared to buy their home, putting you in a stronger position than other potential buyers.
The Pre-Approval Process Here are some of the documents that you will need to provide your lender to get the Pre-Approval process started:
Income : Current paystubs- usually for last two months, W-2s or 1099- usually for last two years.
Assets : Bank statements
Debts : Credit card statements
Investments/brokerage firm statements
Loan statements
Tax returns, usually for last two years.
Alimony/child support payments
Net worth of businesses earned (if applicable)
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