Quick quiz: You’re thinking of buying a home – What’s the first thing you do?
A. Look online for open houses you can tour
B. Find a real estate agent
C. Talk to a loan officer
The answer is “C” – and not just because we’re a bank. A loan officer helps pin down your financial profile and supports you in taking the first steps toward home ownership by getting you pre-qualified or pre-approved for a mortgage.
Pre-qualified and Pre-approved Are Very Different
Getting “pre-qualified” for a mortgage is a common first step for a homebuyer. You work with a loan officer to review your credit history and score, what price home you can afford, and if you’ve collected enough money for a down payment (based on the size mortgage you’ll need). If you fit the risk profile – lender-ese for “this person will probably pay back a loan” – then you’ll get a letter that states you’re pre-qualified for a home loan.
Getting “pre-approved” means that you’ve gone many steps further. You and your loan officer have gathered evidence of your finances and credit-worthiness, and passed the information to a loan underwriter. The underwriter reviews the documentation and approves a mortgage up to a certain amount. You get a letter stating that you’re pre-approved for a home loan from that specific lender.
All of this can happen before you even find a house to buy! Both letters show that you’re a thoughtful buyer – when you do make an offer on a home, your letter will be included with the contract that gets presented to the seller.
Which One Has A Better Chance of Getting the House?
When it comes time to actually get a mortgage, “pre-qualified and pre-approved are miles apart from each other,” says Brian Blonder, Senior Vice President of Mortgage at Capital Bank, N.A. “Pre-qualification speaks to someone’s general ability to execute the process of buying a home. Pre-approval is a commitment, with some contingencies, from a lending institution to give that person a home loan.”
So what do these letters of pre-this and pre-that mean to a seller?
Let’s say you find the perfect house. Your real estate agent puts together an offer to buy packet – your offer price and contract, and financial information to show you’re capable of buying including your letter of pre-qualification or pre-approval for a loan.
And, let’s say the seller has some things he or she is looking for in addition to the right price – a quick sale and a quick move. When the seller reviews the offers, a buyer pre-approved for a loan equals someone who can close on the purchase in as little as 14 days, according to Blonder. All that’s left for the lending institution to do is conduct a home appraisal (to make sure the house is free of defects and worth the sales price) and make sure there’s a clean title of ownership.
On the other hand, a buyer pre-qualified for a mortgage … is going to close in the typical 30-60 days, if he can actually get a mortgage for the price he’s offered, because he still has to go through the loan process that the pre-approved guy went through!
Bottom Line, Get Pre-approved if You Can
From a seller’s perspective, a homebuyer who’s pre-qualified for a loan is in the ballpark for getting a mortgage; a buyer who’s pre-approved is a certainty.
Sometimes which one you get comes down to timing – if you find a house you love right away, you can get pre-qualified very quickly and that will strengthen your offer to buy.
But “if you’re serious about homeownership,” says Blonder, “Do your due diligence ahead of house-hunting. You should expect loan pre-approval to take at least a week after all your paperwork is submitted. It’s good for 90 days, so at that point the monkey’s off your back and you know you can buy a house.”
Capital Bank will consider pre-approvals for home loans, unlike some banks and mortgage companies that want a specific property address first. If you’re ready to find a home, contact us.