Understand the Difference between Pre-Qualification & Pre-Approval and How to Strategize for a Better Negotiation
Most Frisco TX first time home buyers focus on house hunting even before they plan a sustainable route to homeownership. Buyers spend hours and hours looking at houses online while they usually very quickly scheme through recent interest rates. Oh, it’s 4.875% today … oh, it’s gone up to 5.125% now … Yippee, it’s back down to 5%. They play with the mortgage calculators online.
One very crucial yet often taken too lightly part to the home buying success is understanding the Loan approval process and the difference between a pre-qualification and pre-approval process.
Most Sellers want to know that the buyers for their homes require a pre-qualification letter from a lender for an initial offer to be evaluated seriously.
Mortgage Pre-Qualification
A Pre-Qualification process is where a lender asks a borrower for some important financial information such as annual income, job employment, plans about the home purchase and down payment towards the purchase. This is typically done verbally. It involves the permission of reviewing credit report.
Often times, the loan application has not been submitted. The mortgage pre-qualification is subject to paper verification of tax returns, W2s, employment, financial asset statements and other documentation required by the lender.
Selecting a resourceful lender, one that has experience can tell from the “Pre-Qualification” stage, if your loan process will be approved. However, it is not recommended by 3:16 team REALTY to not follow through the process into the “Pre-Approval” step.
Mortgage Pre-Approval
A Mortgage Pre-Approval process includes everything of a Pre-Qualification process. However, this Pre-Approval is verified by reviewing financial documents as provided by the borrower. The pre-approval may even go through the Underwriting process. The result of a successful underwriting process is a loan-approval.
3:16 team REALTY highly recommends home buyers go through the pre-approval process instead of pre-qualification.
How to Strategize for a Better Negotiation?
A pre-qualification letter is a simple letter that simply states the borrower spoke to a lender and reviewed some basic information. It also usually states that the information supplied was taken verbally. A pre-approval letter in addition to an offer has more weight than just a pre-qualification letter because the information supplied by the buyer/borrower have been verified.
An even better proposal for the Seller would be to include a mortgage approval letter.
In a world of mortgage un-certainties and constant mortgage guideline changes, a Seller can never be too sure about getting the most-qualified buyer. A mortgage approval pending property approval can help give the Seller that assurance to accept the offer.
It will make your offer to purchase your first time home stand out from the crowd. *Learn more about the two halves that make a full loan approval process.
Documentation for Mortgage Application Submission includes:
- Recent pay stubs (past 2 months)
- W2s (or Profit and Loss Statements for self-employed) – past 2 years
- Previous tax returns (past 2 years)
- Other income statements (alimony, child support, retirement, etc.)
- Bank statements – Checking and savings accounts (2 months)
- Other financial asset statements (401K, IRA, Roth IRAs, CDs)
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3:16 team REALTY is a locally-owned real estate company serving Frisco
TX and the surrounding cities. Find out
(214) 783-2210
info (at)
316RealEstate.com
Loreena Yeo is the broker of record of 