Get Pre-Approved
A pre-approval letter indicates that you have been pre-approved for a specified mortgage amount based on a preliminary review of your credit information.
A pre-approval is when a lender has verified the information and documents you would submit for a loan application and does a quick review of the file to determine if you would be qualified for financing. A pre-approval is not a promise to lend, but rather a confirmation that, based on the documents provided, the lender reasonably believes you would be able to qualify for financing.
A pre-approval may require a credit report be run, but does not go into the detailed verification processes that a full loan application undergoes, such as an appraisal. As such, a pre-approval can take as little as five minutes to finish. It all really depends on how quickly we receive any documents we ask for and how complete these documents are.
For... Your Agent
Any real estate agent you work with will want you to get a pre-approval so that they can confidently submit offers on your behalf. After all, their reputation is on the line when they submit an offer. Getting a pre-approval shows them that you're serious about working with them to find a house and close a deal.
For... The Seller
When a seller or their agent shows a house, it's an investment of time and resources. They want to know that the time spent at least has the potential to lead to a deal. As such, many sellers prefer potential buyers to at least be preapproved for their expected purchase price before spending the time to look over the property.
Getting pre-approved, at the very least, helps your organize your finances. As you prepare for the pre-approval, you'll gather together documents related to your assets, income, and credit history - which would then be analyzed by our loan officers. You'll get an idea of just how much buying a home actually impacts you - whether you decide to finance the purchase or not.
After all, to be pre-approved you have to qualify for a loan program, meaning the financial impact of buying a house is acceptable for your current income and assets scenario. At the very least, you'll get a quote on a loan program and you can compare whether it's better for you to outright buy a property or finance a portion and have liquidity for your other goals.
Generally, getting preapproved earlier lets you be more prepared throughout the purchase process.
Before looking for houses
Pros- Know your price range
- Ready to submit offer anytime
- Financial impact known and accounted for
- Time to prepare additional documents and funds for loan application
- Know and be able to plan for credit situation later on
- Pre-approval letter can be refreshed if needed later on
- Long time during which credit situation might change, affecting approvability
While looking for houses
Pros- Ready to submit offer anytime
- Financial impact known and accounted for
- Time to prepare additional documents and funds for loan application
- Know and be able to plan for credit situation later on
- Preapproval letter can be refreshed if needed later on
- May/may not be pre-approved because price range unknown
- Medium term timeframe during which credit situation may change, affecting approvability
Having found a house
Pros- Credit situation won't have too much time to change
- Submitting an offer may be delayed
- May/may not be preapproved because price range unknown
- Financial impact not known
- No time to prepare additional documents or funds for loan application if offer accepted
- Credit situation unknown and cannot plan for any actions that may benefit score
The difference between a pre-approval and a pre-qualification is how much more official a pre-approval is and how much more work a pre-approval requires.
Prequalification
A loan officer can use information verbally obtained by you to roughly estimate about how much of a loan you qualify for, based on the day's interest rates. Your credit will not be pulled and documents you provide, if any, are minimally reviewed. You can ask about different loan programs, different types of loans, how various