I can’t ever remember the difference between getting pre-qualified and pre-approved for a home loan. I know that one of them is super important to do before you start looking at houses to buy, and that the other one really doesn’t mean a whole lot. I know that if you want to submit a strong offer on the house you want to purchase, you’ll want to be pre-something’ed so that the seller knows you’re serious.
As part of our partnership with Trusted Lending Advisors – and this month, my husband the Realtor is joining in, too! – we’re taking a look at why you need to get pre-approved before you start looking at houses, and why pre-qualification won’t get you very far. (Maybe I need to remember that approve starts with A since it’s the most important.)
I asked Tim from Trusted Lending Advisors to tell me what the difference is between pre-qualification and pre-approval is:
When a potential client calls for a loan, many banks just take some basic info (address, contact info, basic work info) and may run a credit report. They will then take a quick look to make sure that the income info provided offsets the client’s monthly debt including the new house payment at an acceptable level (debt-to-income ratio). This would constitute a basic pre-qualification.
For a full pre-approval, we collect all of the info needed for a pre-qualification and run a full 3-bureau credit report. Additionally, we go through a list of additional questions to make sure we have all variables considered on a new loan. For example, if a borrower is self-employed, has unique income or assets, has a divorce, short-sale, foreclosure, bankruptcy or any other issues that may cause issues with a loan approval, we address those at the time of the pre-approval.
We normally also collect tax returns for the past 2 years and complete a full income analysis at this time for any self-employed borrowers, and for clients that work overtime or have commission or other variable income, we will collect paystubs and W-2’s in advance and analyze their income. In the case of a refinance, we also research property values before structuring a loan.
We also discuss down-payment funds available, and targeted monthly payments to. Finally, we use all of this information to complete an analysis of the best loan options for each client custom-tailored to their needs and provide the client and their Realtor with a written and detailed pre-approval letter and a written estimate for the loan program (or programs) they are considering.
By doing this extra work up-front, we are able to successfully avoid most of the “surprises” or issues that can arise during a loan approval. This constitutes a full loan pre-approval, and allows for us to provide each client with a specific list of items that we’ll need from them at the time of their loan application to streamline the final approval process.
And from Jeremy the Realtor, here’s why he requires his clients to be pre-approved before getting too far into the house hunt:
There are at least 3 reasons for people to get pre-approved before they start seriously looking at home, and they have nothing to do with IF you can get approved! (Most people already know if they have good credit or not. :)
1. Depending on the type of financing you choose, it may impact what homes you can purchase. The most common example is when buyers choose VA or FHA financing, it effectively eliminates many homes in poor condition because FHA and VA won’t finance homes with certain problems.
2. As part of the pre-approval process, the lender should give you a fees worksheet of some sort. This details what your closing costs will be. If you want to have the seller pay your closing costs (this is fairly typical) then we have to know what those costs are to properly formulate an offer.
3. Most people purchase a home, at least partially, based on the monthly payment, and online loan calculators don’t tell the whole story. Your payment is impacted dramatically by your choice of a loan program, down payment, mortgage insurance (for loans with less than 20% equity or down-payment, and (least of all) the interest rate. In order to know what homes are comfortably in your price range you need to be pre-approved.
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Thanks to Tim and Jeremy for the input! If you’re ready to look for a home, I’d love to have you consider using Tim at Trusted Lending Advisors as your lender and my husband Jeremy as your Realtor! I know that you’ll receive exceptional service from both of them, and I’m not the only one who feels that way.
Remember that Trusted Lending Advisors is offering Springs Bargains readers a lender credit for your appraisal (up to $400 value) on any closed loan transaction! Just mention Springs Bargains when you call Tim at (719) 266-8183 or visit the Trusted Lending Advisor website.
You can search Colorado Springs homes for sale on Jeremy’s website, with no registration required to view any information. You can contact Jeremy at (719) 231-9043 or jeremy@thecircagroup.com.
Trusted Lending Advisors is powered by Academy Mortgage | Regulated by the Colorado Division of Real Estate | LMB 3113 LMB 100017529 NMLS 257308 | Equal Housing Opportunity
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