Buying your first home is an experience that you’ll never forget. That’s why it’s best to make it a positive one! This can be easily achieved with the right real estate team working beside you, as well as a clear understanding of the home buying process. Something that most first time buyers are not aware of is the concept of pre-approval and pre-qualification.
To start off, pre-qualification and pre-approval are not the same. Sometimes these terms are used interchangeably, but this is not correct. Though they may sound similar, they are two distinctly different processes with two distinctly different purposes.
What is Pre-Qualification?
A pre-qualification is often based off of a single phone call. Lenders estimate your potential buying power based upon your income and debt, and sometimes, a credit check. This process is nothing more than a superficial determination on whether or not you, the potential borrower, would qualify for a loan under the lender’s guidelines.
You are typically not required to produce any documentation that would verify your income, savings, or debt level. It is important to understand that a pre-qualification is not a binding agreement or a promise of a loan.
What is Pre-Approval?
The pre-approval process is much more comprehensive, and that’s a good thing. It is a written commitment that you receive from a lender after undergoing a complete underwriting process where your income, debt, and savings are examined. The pre-approval process is far more formal, and you will be expected to supply your lender with tax returns, bank statements, W2’s, and any other necessary documentation.
When the pre-approval process is complete, you will have a bankable loan to work with during your home search, which will help guide you during the home selection process. This is beneficial because you and your lender will work together to determine the right down payment, loan program, and monthly housing payment for your financial situation.
When the pre-approval process is complete, your lender will provide you with a pre-approval letter documenting that you are a “ready to go” buyer, which will position you as a strong buyer when making an offer on a home.
So, Which is Better?
When you’re serious about purchasing a home, you should always get pre-approved.
Why? Well, a pre-qualification is not reliable or bankable when placing an offer on a home and can delay the buying process, since a seller’s acceptance of the offer will be based upon your ability to secure financing. With a true pre-approval, you can make an offer on a home that will be taken seriously by sellers because they know that you have already secured funding.
This can be very important in competitive markets where many buyers are competing for the same properties. When you have a full pre-approval, you can make offers with greater certainty for you and the seller, thereby increasing your chances of getting your dream home.
Even in slower markets, pre-approvals allow you to complete the buying process stress-free. You know that your loan is ready to go when you find the right home, and you can rest easy knowing that your offer will be taken seriously by the seller.
If you still have some questions about pre-approval, please download our free guide, The Pre-Approved Buyer’s Checklist. It will walk you through everything you need to know about the pre-approval process. Then, when you’re ready to start your home search in the Orange County area, contact Inspira Group! We will help you get your pre-approval and help you find your dream home.