Many people dream of buying a lovely house for their family. If you cannot afford your dream haven out of your own pocket, you need to find a way to finance the purchase. Before you can get a loan for a house, you will have to go through mortgage procedures. Most people are aware of the fact that getting a mortgage for a home can be rather complicated. To obtain a loan, there are two main steps: getting pre-qualified and getting pre-approved.
The first step of receiving a loan is to get a pre-qualified letter. If you cannot move past this step, you will have to kiss your dream house goodbye for now. No seller in their right mind would accept your offer if you do not possess a pre-qualified letter. This is because there is no guarantee that you will be able to pay off the house. It is important to get a loan officer to assist you with this. You should prepare yourself before getting a mortgage. Here are the things that you need to know about getting pre-qualified and pre-approved:
Although some people use these terms interchangeably, the two are very different. One can use Pre-qualified and pre-approved letters for distinct reasons. As we mentioned above, without a pre-qualified letter, you cannot move a step further in the home-buying process.
To get pre-qualified, you will have to put in a request with a mortgage company. The company will then consider your basic information and put a cap on the maximum loan that you can get. The amount that they offer is the amount that they think you can afford. Most of the time, it is based on your income, credit score, and existing debts. Keep in mind that the lender doesn’t put too much effort into a pre-qualified letter.
Since they will simply be looking at your basic information, the result will be an educated guess. However, it will not necessarily be random and inaccurate. These lenders have been working for years and have gained a lot of experience. They have the capability of calculating the loan and interest rate you can get with nothing but a quick glance at your information.
Once you have a letter that pre-qualifies you as a home buyer, you can move on to a pre-approved letter. This one has more weight and importance than the pre-qualified one. Your mortgage company will research more in-depth about your financial history. You will have to provide your credit scores as well as the precise details of your current debts, financial assets, and employment history.
They put all of the information into their system. A program will then generate a number and analyze the risk of giving you the loan. Let us remind you that these companies do not want to take major risks. After they receive the result, you will get the maximum loan amount and the interest rate that the company can offer. The numbers will be a lot more accurate than the ones provided in a pre-qualified letter. This is why you might see changes in numbers.
Differences between the pre-qualified and pre-approved letters
The primary difference between getting pre-qualified and pre-approved is that you have to meet more conditions for getting pre-approved. You will see specific requirements under each circumstance. It is crucial for you to meet every condition to receive the loan with ease. When you bid on a house, the seller will begin by looking at your pre-approved letter. Good numbers will make them feel confident that you will pay off your loan. A pre-qualified letter alone may not bear as much weight and potentially make the seller decide that they don’t want to take the risk.