Buying your first house can be a daunting task. Many things should be considered before you purchase, but one that shouldn’t be overlooked is acquiring a mortgage. When trying to obtain a mortgage, certain conditions must be fulfilled, such as income, credit score, and more. While there are multiple stages in the mortgage application process, two should be kept in mind: those of pre-qualification and pre-approval. Though some individuals may use these terms interchangeably, there are key differences that every home buyer should be aware of. To help you understand these terms, below are some things you should know about each.
When trying to obtain a mortgage, the first step is the pre-qualification process. This gives you an idea of the loan you can qualify for by providing your bank or lender an overarching view of your finances such as assets and income. Note that the amount quoted is based on a preliminary assessment, and the documents you give will not be verified. Furthermore, the calculation provided can change; the more accurate information you give, the better the estimate you will receive. This process is a good opportunity for you to learn about your mortgage needs and the options available. If you’re going to make an offer, you may want to include a letter of pre-qualification, as it can comfort the seller if financing approval is a requirement. However, this letter is not always needed when purchasing a home.
The second step when getting a mortgage is the pre-approval process, which will provide you with a more accurate estimate of the mortgage loan you can receive. During this stage, you will be expected to complete a mortgage application. This may include paying an application fee, plus presenting paperwork such as bank statements, tax returns, assets and income for a complete financial background check. When the calculated amount is provided, ensure you are aware of the interest rates and whether they are locked or variable. You should then tell your lender how much you can put as a down payment. With a pre-approval and a definitive available loan amount, you will be able to narrow down the homes you are looking for with a more realistic and accurate budget.
Should I Get Pre-Approval or Pre-Qualification?
As a first-time home buyer, you should get both a pre-qualification and pre-approval. During the early stages when considering purchasing a home, a pre-qualification should be obtained. This will provide you with a budget to work with. When you are three months away from purchasing a home, a pre-approval should be acquired. This can strengthen your offer, as it will inform the seller that you are serious about purchasing the home.
How Long Does a Pre-Qualification or Pre-Approval Take?
As the pre-qualification process is less detailed, it can take a matter of minutes over the phone or even seconds online. A mortgage pre-approval process is longer, usually taking a few days or weeks depending on your circumstances. For example, if you have a poor credit rating or are self-employed, it may take longer to verify the financial information provided. The process of obtaining a mortgage for your first home can be overwhelming. Understanding the stages involved and knowing the documents you need to submit can be stressful for any home buyer. Our team is here to ensure your first time buying a house and getting a mortgage can be enjoyable and stress-free. Contact our experienced and friendly realty team today!