Hopeful first-time home-buyers need to take their time as they select their home. The excitement of becoming a homeowner can cause people to rush the process and make mistakes. Rather than starting by browsing homes, it makes more sense for buyers to make certain they have the credit scores and income needed to buy a home. Pre-qualification and pre-approval for a mortgage loan help to answer all financial questions.
Understand Each Process
Mortgage Pre-approval vs. Pre-qualification is a basic financial lesson that all home-buyers should understand before they begin the buying process. Pre-qualification is the first step for anyone seeking a mortgage. The potential borrowers provide the lender with their personal financial information. The lender reviews the information home shoppers offer and lets them know if they would qualify for a loan and what borrowing limit they have. The information is not an offer to lend because it is only based on unverified information from the borrowers.
Mortgage pre-approval begins once the home-buyers learn they have enough income and a credit rating high enough to buy a home. The borrower allows the lender to access their personal information to verify the numbers they gave were accurate. If the lender discovers the client information matches what was given during the pre-qualification process, they will pre-approve the borrower for a loan.
Protect Credit Scores
Pre-qualification protects the credit score of home-buyers because it prevents unnecessary credit inquiries. Credit inquiries by lenders can lower credit scores. A pre-qualification avoids the need to have multiple lenders researching the client because it tells people instantly if they have the money and the credit for buying a home. Lenders do not make credit inquiries during pre-qualification.
The value of the pre-qualification is only as good as the information the borrower provides. Lenders base their decisions on this information. A borrower, for example, will not get a legitimate pre-qualification answer if they forget to include some of their debt or intentionally leave it off the form.
If the outcome is negative, the borrowers will gain a better understanding of what they need to do to improve their chances for a loan. Even if the individual or couple seeking pre-qualification has a positive response, they can still get assistance with their credit situation. This allows them to get a future pre-approval for a larger loan or a lower interest rate. Any improvement in a financial situation will boost a credit score.
Improve Buying Power
Mortgage Pre-approval vs. Pre-qualification becomes more important to understand when buyers begin making offers on a home. Buyers that launch their home search with only a Mortgage Pre-qualification have done nothing that will improve their chances for a better deal. Real estate agents and home-buyers do not usually feel more secure about a buyer with a pre-qualification than they would any other buyer.
Pre-approval does give the potential buyer a boost. The effort to gain pre-approval proves to the seller that the individual is serious about their intention to buy. The seller can feel secure the buyer will go through with the deal and the closing process will end sooner. A pre-approval can help a buyer to stand out among the crowd when a new home has drawn the interest of several parties. It may also encourage the seller to take any negotiations more seriously than they would with other buyers, and maybe even accept a lower offer because they know the sale will move faster.
Reach out to Fellowship Home Loans to begin a home buying search. Our mortgage professionals can answer any questions about both processes and offer advice for those that need to work on their financial situation. Once the pre-approval comes through, you will have a maximum amount they can borrow. The information enables you to narrow your search because you will know what you can afford.