Are you PreApproved or Pre Qualified?

There is a huge difference between being pre qualified or being pre approved. There is a lot of confusion I hear from buyer so I would like to take a moment to clarify.

If you are just starting your Shakopee home search you may have been told by friends or your Realtor to first talk to a loan officer. Discussing your options with a loan office before you begin to look for a new home should be one of your first priorities. Many mistakes buyers, especially first time buyers make is looking too early and then either looking at too high of a price range, too low of a price range or unfortunately they may not even qualify to buy at all for the time being. I recommend to clients to sit down with a good local Shakopee loan officer with a reputable company. If you can, try to meet them in person rather than doing everything over the phone.  I think talking to the loan officer leads you into more questions you may have than if  it were just a phone conversation. I also think you can read the loan officer a bit better to see your level of comfortability.

PREQUALIFICATION

I hate hearing from buyers when they tell me their loan officer should have them approved within the next few weeks. A good loan officer should be able to give you some general numbers the same day or at least within 24-48  hours max. Loan Officers also should be able to be pretty accurate pending the information you give them is current. Getting pre qualified is one of the first steps in the home buying process. It’s easy, quick and painless. Typically the loan officer in Shakopee will ask for your income and ask about any debts you may have. After evaluating this information, the loan officer can give you an idea of the mortgage amount and monthly payment for which you qualify.

During your first meeting with the loan officer, they are going to gauge where you are also comfortable with payments. Make sure you stick to those numbers! A loan officer may tell you to qualify for a $1,000,000 home, but if you would like your payments to be $1,500…not going to happen, unless you have a gigantic down payment. They also may discuss various mortgage options and recommend the type of mortgage that might be best fit your situation.For example comparing a 5% conventional loan to a FHA loan or a 203k loan.

Remember, the loan officer has not pulled credit at this point and based their analysis only on the information you provided to them. Being told you are pre-qualified is not a sure thing the underwriters with give you a loan, it just give you a basis to start your search. For this reason, a pre-qualified buyer doesn’t carry the same weight as a pre-approved buyer who has been more thoroughly investigated and through the underwriting process. This is not a commitment to lend a buyer money.

PREAPPROVAL

Now obtaining a pre approval letter carries more weight and gives you more negotiating power and will put you in a better position as a buyer. Realtors feel much more comfortable presenting an offer if it has solid backing from a good loan officer and bank. I have seen lately even if you do have a pre approval letter from a bank, foreclosed homes are requesting buyers to get an approval letter also from their requested bank. Don’t be alarmed, you do not need to commit to them or anything, but they have seen a lot of transactions fall apart over the course of the past few years and are trying to protect their interests.

Pre Approval letters typically state the terms, loan amount and address, but do not need to include everything. Again some banks will request exactly what they prefer to be on the approval letter on occasion.

Getting pre approved involves completing a mortgage application, many companies have this online. From that point lenders need to get a hold of W-2’s and bank statements. One of the most important steps to the process is pulling your credit report. Many institutions now highly regard credit scores and tie that score to your interest rates more than ever. Insurance companies and even employers now lok at scores. It used to be if you had a pulse, you could buy a home and I am SO happy those days are gone. Not everyone is financially responible to buy a home. I have seen many hardships where I truely sypathize with the owner, but I have also seen many more where they are doing a short sale or geting foreclosured and it’s flat screen after flat screen, new cars isitting in the driveway because their garage is full with the boat, motorcycle, snowmobile and fourwheeler….sell your stuff! Okay, I went on a tangent and off course there, sorry. Again, take this as a reminder to stick to your budget and don’t get carried away with purchasing a home. Buying a home can be a very emotional experience so make sure you are also making a sounds financial and logical one as well. The biggest reason credit scores ar so important is because it can dicate who will lend to you, what programs you qualify for and what your interest rate and some fees may be.

Once the application process is complete you will receive a pre-approval letter indicating the amount your lender is willing to lend you for your home. Although a pre-approval letter lets you, the Realtors invloved and the seller know you are a solid purchasor,  it is subject to the appraisal of the home and often cases other conditions pending case by case. Getting pre-approved for a mortgage also enables you to move quickly when you find the perfect place.

If your financial situation changes for some reason such a job loss your Realtor should be able to protect you per the financing addendum of the real estate contract, or if interest rates rise. I

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