Buying a home for the first time is an exciting accomplishment, but it’s a process that often comes with pre-purchase jitters. The first hurdle to overcome is finding out how much home you can afford. Two terms often confused in the home buying process are mortgage loan pre-qualification and home loan approval. While sounding similar, in a competitive market it could be the difference in you landing your dream home and losing it to another buyer.
Depending on where you currently are in your decision of potentially purchasing a home will determine whether or not you should seek a pre-qualification or a preapproval letter. If you are just thinking of purchasing a home in the next year or so a pre-qualification letter is a good place to begin. Pre-qualification does not pull your credit and you do not have to provide any documents. You simply give the lender information on your current income, what your credit score is, assets, and liabilities are. You will then receive a ballpark figure to how much home you can afford.
If you are looking to purchase a home within the next ninety (90) days you need to seek a pre approval from a lender. The pre approval process will require you to provide tax documents, pay stubs, giving permission to the lender to pull your credit score, and an assessment of your revolving debt (i.e. car notes). A preapproval letter clearly shows how much purchasing price you can afford, and is good for ninety (90) days. Not only does it increase your chances of getting a seller to take your offer serious, it also helps you streamline your search to where it matters.
There is no use in window shopping for a home and getting your hopes up when you can’t afford the purchase price. The lenders time, Realtor/agents time, and your time is valuable; therefore, your home buying team and you should know which market value to shop in to find a property that best fits your price range, wants, and needs as closely as possible.
What to seek and when?
PRE-QUALIFICATION: Seek when you are just curious about buying, know you have time before you want to make an offer on a home, planning to purchase in the next couple of years or so.
PRE-APPROVAL: Seek when you are ready to buy a home within ninety (90) days, when you want to present an offer to the seller with the attached pre-approval letter to strengthen your odds of them selling to you.