Oceans Luxury Realty Full Service LLC

Pre- Approval is a More Involved Process Than Pre-Qualification

by Lifestyle Group Daytona Beach 03/08/2020


 Photo by Tayeb Mezahdia via Pixabay

When you start looking for your dream home, you need to know how much mortgage you will qualify for. Your real estate agent might ask you to get a pre-qualification letter. However, just because you are pre-qualified doesn’t mean that you will get the loan. You need a pre-approval for that, and even then, the mortgage company might not approve your application.

Pre-Qualification

A pre-qualification letter just tells you how much loan you can afford. The lender does not check your credit, your debt-to-income ratio or other factors before issuing a pre-qualification letter. Additionally, a pre-qualification letter is dependent on the information you provide to the lender. The pre-qualification essentially gives you an estimate of how much home you are able to afford so that you do not look at homes that are not within your range.

To get a pre-qualification, you supply the lender with your assets, debt and income. Because the lender bases its decision on the information you provide, rather than information from outside sources, a pre-qualification is not a guarantee that you will get the loan.

Pre-Approval

Getting pre-approved for a loan usually takes longer than getting pre-qualified. The lender pulls your credit report and might ask for additional documents, including tax records and bank statements. To get pre-approved, you must complete a loan application and provide your social security number. The lender might charge an application fee for a pre-approval.

With a pre-approval, you will have a closer interest rate assessment, that is usually not finalized until the loan goes through underwriting. Once the lender pre-approves you, it will send you a conditional commitment for the loan amount. You can look for homes at or below that price.

In a market when buyers bid against each other – a seller’s market – having a pre-approval letter might give you a step up with the seller, who will more likely choose an offer by someone more likely to get the loan. Thus, if you and someone else submit a bid on your dream home, but the other person only has a pre-qualification letter, the seller might accept your offer, even if it is not as good as the other buyer’s offer, simply because you are more likely to get the mortgage.

For a pre-approval, you will need to:

  • Complete the lender’s mortgage application;

  • Possibly pay an application fee;

  • Supply your social security number and allow the lender to pull your credit;

  • Provide financial information to help the lender make a decision; and

  • Tell the lender how much you plan to put up as a down payment.

After you are pre-approved and the seller accepts your offer, you will then have to provide the rest of the documentation to the lender, including the accepted offer, bank statements, retirement account statements, taxes for up to two years, proof of income and other documents that will help the lender come to a concrete decision.

About the Author
Author

Lifestyle Group Daytona Beach

Specializing in Commercial Real Estate and Luxury Homes in Ponce Inlet, Ormond Beach, Daytona Beach and Port Orange

After graduating from the University of Central Florida with a degree in Finance, I spent over twenty years in wealth management in Central Florida. In addition to Wealth Management, I have operated Hotels, Property Management Companies, and multiple internet ventures. My professional knowledge has helped me succeed in my own entrepreneurial endeavors. My personal business experience has led to growing many businesses as a private equity investor and managing partner. I am currently involved in business ventures within the Real Estate, Software and Apparel space.

Daytona Beach has been my home for more than thirty years. I take pride in my community and have contributed to its success through participation on a number of boards. I am currently serving as the Chair of the Daytona Beach Chamber's Economic Development Committee. This particular committee has been focused on the redevelopment of Daytona's beachside community. I look forward to continuing to serve this community through both personal and business endeavors.