The terms pre-qualified and pre-approved almost sound like they could be synonyms, but there’s a big difference.
But when it comes to home financing, there’s actually quite a different meaning between the two—and securing pre-approval for a loan is actually what brings you closer to the closing table.
Think of it this way:
Getting pre-qualified is like taking baby steps towards getting approved for a mortgage. You call up a lender, self-report your credit score, and relay information about your income. In turn, the lender gives you an idea of how much you can afford.
So, what exactly happens between the pre-qualified and pre-approved stages?
This is the time when you start gathering up all your required documentation. A pre-approval happens after you’ve provided documents like pay stubs, bank statements, tax returns, and W2s, and the loan officer has combed over everything and given you the green light.
But, be forewarned: A few things can go awry between the pre-qualified and pre-approved stages.
For example, one mistake that people often make during pre-qualification is relying on third-party credit reports (those other than the official, once-a-year free report you can get from one of the three major bureaus at annualcreditreport.com), which are known to inflate scores.
Another rookie mistake?
Opening up a store credit card to buy furniture or leasing a new car while you’re simultaneously in the market for home financing. These moves can tie up your credit and tinker with your income-to-debt ratio.
Even before you get pre-qualified, you can get your financial house in order.
One year out is the perfect time frame to really start monitoring your credit, getting realistic about your down payment, and talking to a real estate professional to understand the process. Go ahead and connect with a mortgage lender this far out, too, so that you can know what’s expected. For example, understanding that your commission-based job could affect your buying power differently than a salary-based job will help you plan for the lending process.
Honesty is the best policy.
Also, when it comes to working with mortgage lenders during the pre-qualification process, honesty is the best policy. The goal is to close your loan as smoothly as possible. The best way to do that is to avoid any surprises from popping up. Be upfront if you pay alimony, have a tax lien, received a financial gift from a family member or, heck, even have an outstanding parking ticket.
It’s also important to understand that hiccups can arise even after the pre-approval process and underwriter review.
For example, while it’s rare if you lose your job or quit the week of closing, your approval could be in jeopardy. Lenders always do a final “verification of employment” leading up to the closing.
So, what’s the takeaway here?
Snagging that pre-qualification is just the first in many steps before you close on a house.
Its time to put your newfound knowledge to work! If you’re in the market for a new home or ready to refinance, give one of our seasoned Loan Officers a call today to get a real credit approval decison in less than 24 hours! We are happy to get you started!
Original Article: ApartmentTherapy.com