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Mortgage applications can be complicated and the approval process is also intricate. There are so many expressions used in this particular field that consumers can get confused and make mistakes due to inaccuracies in terminology. One of those common mistakes is confusing pre-approved home loans with pre-qualified home loans.
There are many formalities and transactions that are involved in getting a home loan for your dream home. There are many jargons or industrial phrases that you need to understand before plunging yourself in the home loan market. It will take you some time before you start understanding and responding to the industrial terms.
Pre-Qualification
Before you even apply for a home loan, your lender needs to understand if you are pre-approved or pre-qualified for it. Your home loan approval status depends upon these very terms.
You need to work out the details of your home loan with the real estate agent. He/she is the right person to give you all the information that you need. Many of us make the mistake of thinking that we are eligible to get a home loan because we are pre-qualified. This is incorrect as no one is eligible for a loan just on the basis of pre-qualification. It is only when you are pre-approved for the loan that you can actually avail it.
Pre-qualification for a home loan means that you need to give some information to the broker about your credit standing, annual income, employment history, your debt and expenses. On the basis of this information, the broker pre-qualifies you for a home loan within a price range. The lender may also give you a written statement, on the basis of this information, about your pre-qualification. This information is helpful at a time when you start looking around for a house. The broker would know the price range between which you need to find a home.
The pre-qualification is like a tool to understand the price range within which you need to buy yourself a home. Your real estate agent would know the range within which they should look for a home for you. But, the home loans are lent on the basis of pre-approvals.
Pre-Approval
A pre-approved home loan is very different in comparison with a pre-qualification. A pre-qualification is done on the basis of the information that you provide to the broker. No body verifies the information in this case. The information that you provide could be manipulated. There is no lender or financer who actually come and checks that.
Pre-approved home loans involve similar steps that are followed in the pre-qualification scenario. You provide all the information to your lender, but you also get a full approval of the information from him/her. You need to apply for the home loan first. In this case, you need to fill up an application and provide documents to support them. The credit report is then reviewed. This report is then sent for another approval to a second lender.
In case you do not receive a pre-approval, then, seek the help of your broker to consider the necessary changes. Once you get a pre-approval, it becomes very easy for you to get a home loan. Keep one thing in mind, you credit report is pulled again right before the home loan is given to you, and if your credit is in a bad condition, the pre-approval will not be able to help you.
A pre-approval saves a lot of your time in finding the right kind of home and the right kind of home loan. Your negotiating power increases with the brokers and the financers.
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