You are finally ready to make the move into homeownership. From all of the online searching you have done, you know that you need to get a “pre-something” to prove you are a serious home buyer. But which is it: preapproved or prequalified? These both sound good, but they have different purposes.
The preapproval process is like a test drive before you submit your formal application for a mortgage. The loan officer and an underwriter will verify the figures, facts and your credit history. This process could help pinpoint things you may want to improve or errors that you will want to correct before entering the formal application review process. A loan officer will also start looking for mortgage programs that might apply to your financial situation. The preapproval process is more precise because it is fully underwritten and helps ensure your home buying process will go smoothly.
In addition to ordering your credit report, a loan officer may ask for copies of last year’s W-2s, brokerage, savings account statements, current pay stubs and your credit history..
When you ask a loan officer to do a prequalification, it can be done online, in-person or by phone. They will verbally ask you to share information on your income, assets, credit and the amount of debt you owe.
It’s a conversation that helps establish some financial parameters before you make offers on properties and helps you find the ideal price range when starting your search.
The process is useful for first-time buyers and is not rigorous enough to distinguish you from the other attendees at an open house or when you request a showing. The reason is that the letter is based off something similar to a best guess by a loan officer. It’s not reviewed by an underwriter and doesn’t address what to expect in regards to the type of mortgage needed to buy a home.
Your monthly bills
When you are preapproved, you will receive a letter to share with real estate agents and home sellers. After you have an offer accepted on a home, you will still need to formally apply for a mortgage. This review process will involve a deeper dive into the information you have already given. Having a pre-approval letter also means faster service and turn times to get you into your house sooner. The official mortgage application is more likely to be easier than with just a prequalification.
Why should you bother getting prequalified?
The prequalification process does not take a lot of time or effort on your part. Any cost is usually limited to that of requesting a credit report. When you already have an idea of the Orange County area you want to look in and the type of home you can afford, skipping the prequalification step could make sense. It is a preliminary step for those who need a starting point.
In comparison, for most buyers, a pre-approval is a step that they should not skip. Obtaining a letter from a lender that states you are preapproved can be especially helpful in neighborhoods where the existing home inventory is tight and when the home you are looking at is perfect. Being pre-approved makes it easier for the seller to accept your offer over that of a buyer that has not taken this extra step.
If you are in the market to buy a home in Orange County, click here to talk to the Ryan Grant Team today!