Shopping for a home can be a fun and exciting process, even in 2020. Although social distancing requirements and adjustments to how some industries are doing business, it’s still possible to browse homes for sale online with ease and schedule private showings for those properties that really catch your eye. But one thing home buyers tend to forget about, pandemic or not, is getting prequalified or preapproved for a mortgage. Taking this step may not be a necessity before you begin your home search, but it can help position you as a more competitive buyer and provide you with a better idea of what you can afford.
Prequalified vs Preapproved for a Mortgage
Is there a difference between getting prequalified and preapproved for a home loan? Absolutely! Prequalification is when the lender offers an estimation of how much a borrower could qualify for based only on the initial information the borrower provides. In other words, it’s an unofficial estimate.
Preapproval, on the other hand, is more in-depth and requires the borrower’s information to be verified by the lender. With a preapproval, the lender will provide an official document (preapproval letter) stating how much money the borrower is eligible to borrow.
How Preapproval Letters Help Home Buyers
Let’s say two different home buyers are interested in making an offer on the same home for sale. One buyer has a preapproval letter. The other does not. If they both put in their offers at the same time, for the same amount, the likelihood of the preapproved buyer’s offer being accepted is much higher than that of the other buyer. This is because a preapproval letter shows home sellers that the buyer has already taken the appropriate steps to secure financing. This shows the seller three important things:
- The buyer is serious.
- The lender is serious.
- The deal probably won’t fall through at the last minute due to financing issues.
Anyone can make an offer on a home for sale. But once an offer is accepted, it’s the buyer’s responsibility to come up with the funds to pay. If they can’t get a mortgage, the deal won’t go through, and the sellers have to start all over again. If you’ve ever seen a real estate listing that said “contingent,” that usually means someone has made an offer and the seller has accepted the offer, but more criteria are needed (usually confirmation of financing) before the sale can go through.
What Do I Need to Get Preapproved for a Mortgage?
To get preapproved for a home loan, your lender will most likely require the following documentation:
- Proof of income (W-2, tax returns, bank statements, pay stubs, etc.)
- Good credit
- Proof of assets (investment account statements, proof of ownership of businesses, etc.)
- Employment verification
- Proof of identity (drivers license or other photo ID, social security number, etc.)
What Do I Need to Get Prequalified for a Mortgage?
Getting prequalified for a mortgage doesn’t require any official documentation. In most cases, the borrower only needs to provide their name, contact information, and self-reported data regarding their income, credit score, employment status, and annual income. Again, prequalification is based solely on the borrower’s word and is not verified by the lender. This is an initial and unofficial estimate of what the borrower may qualify for, based on the information they provided to the lender.
Ready to Begin the Mortgage Process?
If you’re ready to take the first step toward getting approved for a mortgage, connect with Luxury Mortgage today. Click the button below to get started.
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