In this crazily competitive housing market, you need to create an attractive offer. And one of the first steps in the process is pre-approval. Although an offer may have stood a chance with a simple pre-qualification in previous years, such is no longer the case. With multiple offers and over-asking-price bids the norm, your offer won’t stand a chance unless your financial profile is stellar.
The Difference Between Pre-Qualification and Pre-Approval
- A pre-qualification is a quick and cursory review of your financials based on what you input on a website or what you have told a mortgage loan officer. One way to think about it is the initial conversation with the lender.
- Pre-qualification may be a good idea if you have just started considering buying a home but are not ready to pull the trigger. You are more likely to get accurate results when speaking with an experienced loan officer who knows how to analyze income, FICO scores and information about assets. A mortgage loan officer, such as Jorge Abich, may advise you to step back a bit and take corrective measures prior to applying for a loan. You could pay down some debt. Wait until after filing your taxes. Improve your credit scores. Increase savings and reserves. It’s better to determine such things prior to making an offer on a property. Most importantly, getting pre-qualified will save you time and disappointment before you start the search, since the information you provide will help determine how much home you can afford.
- Lenders collect information about how much you owe and how much you pay per month in debts. They will use this information to determine debt ratios and make sure you have enough funds to close the transaction. Oftentimes, they will write a pre-qualification letter that you might be able to use when making offers. However, the letter is akin to Swiss cheese, as it leaves the lender with lots of outs as financials have not yet been verified. “Qualified” refers to the fact that the loan amount is conditional upon verification of initially disclosed information.
Since pre-qualification provides a rough overview, it does not guarantee loan commitment. For this reason, serious buyers in 2021 seek pre-approval instead of pre-qualification. When you start this process, be prepared to provide your:
- W-2s and 1040s for the past two years
- Year-to-date pay stubs
- Profit & Loss (P&L) statements for business owners
- Bank and investment statements
Once you submit a loan application and give permission, lenders run a credit report that will be a large part of their decision-making process. After all, how you have paid your obligations in the past is a good indicator of how you will pay them going forward. Then, they will determine how much you qualify for based on credit, debt ratios and assets available to pay down payment, closing costs while maintaining reserves. FICO scores will also help determine eligibility for certain loan programs.
Keep in mind that lenders are looking at current salary or hourly pay as well as consistency of income. The lender may examine up-trending commissions, bonuses, and other variable types of income, averaged over two years. Conversely, down-trending variable income will trigger questions about the viability of such income going forward.
Pre-approval will give you an edge when making an offer, since associated purchases are not contingent on loan approval. The San Gabriel Valley market sets the scene for a seller’s market. Assuming all goes well, the lender will issue a Pre-Approval Commitment Letter, which the buyer can include in any written offers. Working with a company that employs loan officers as well as real estate agents, such as SoCal Platinum Properties, Inc., will help ease this entire process.
After pre-approval, the final stage of the mortgage process is the commitment of an ironclad loan. A lender will re-underwrite your loan after receiving information about the house you want to purchase, and the amount of financing required. Price is just one aspect that lenders consider.
More About the Mortgage Approval Process
- Appraisal of the property (The property’s appraised value must come in at the same or higher than the agreed upon sales price.)
- Title search
- Updated credit report and financial documents
- Proof of homeowners’ insurance. In some areas, flood insurance may also be required.
- As soon as you have successfully navigated your way through the phases of the mortgage process and all the criteria has been met, you will be well on your way to a closing date and signing paperwork to purchase your home.
About SoCal Platinum Properties, Inc.
If you are interested in buying or selling property in or around San Dimas, California and the surrounding area, don’t get caught in a Catch 22 — owning two homes or none at all. We list properties and advertise them to guarantee a swift sale for maximum profit. We also assist home buyers as they hunt for, make competitive offers, and purchase residential property. Realize your dream of homeownership, reduce your house payments to free up funds for whatever purpose you see fit. We offer the following refinance options: We offer the following Refinancing Programs: FHA Streamline, FHA Cash Out, FHA 203k, VA Streamline, VA Cash Out, Conventional, Commercial and Jumbo loans. Lock in your low rate today (213) 709-5178.