There is plenty of real estate terms used in transactions. Needless-to-say it can be confusing for both buyers and sellers trying to navigate the process. The home loan process might feel overwhelming and difficult to understand. Both buyers and sellers find terms like “Pre-Qualification” and “Pre-Approval” used interchangeably, it’s no wonder they find themselves wondering how to proceed.
The first step in obtaining a home loan is to meet with a lender and discuss their financial situation. The lender will discuss income, job stability, debt and credit. Once they have performed a basic review of the qualifications and run credit, they will issue a Pre-Qualification Letter to the potential buyer. This letter will identify the maximum sales price, down payment requirement and basic terms of the loan, such as interest rate.
The Pre-Qualification letter is used to provide evidence that the buyer has been reviewed by a lender who is vouching for their ability to obtain a loan.
A Pre-Approval is quite different. In this case, the lender collects all the necessary information and proof of eligibility and has it reviewed by the lender underwriter for approval. A Pre-Approval letter is almost like shopping with cash, the only remaining piece of the puzzle is the property they are buying.
If you are looking to purchase a home the best place to start is seeing what you qualify for before going out and seeing homes. The key is to stay within the price range that you will be most comfortable in. The fun part of looking at homes goes hand in hand with working with a lender to keep your timeline in tact and your understanding of the costs associated with one of the larger purchases you will make.