Buying a new home is typically one of the largest purchases anyone makes during their lifetime – and because of that, it will oftentimes require financing (usually a mortgage) from a bank or other lender. Having your financing lined up before you even start looking at potential properties can help you to narrow down the price range, as well as an approximate dollar figure that you’ll owe each month in order to pay down your mortgage.
In many cases, sellers will consider offers from those who can get financing above those who have not yet spoken with a lender – even if the latter’s offer price is higher. For this reason, it can be beneficial to get your financing ducks in a row. But don’t get tripped up with terms that sound similar, like pre-approved and pre-qualified, because there is a big difference between the two.
Pre-qualification versus Pre-approval
In the mortgage application process, becoming pre-qualified is really just a first step. Here, based on data that you provide, you can get an approximate idea of how much loan you will likely be able to obtain.
For instance, the amount of mortgage financing you may qualify for (as well as the interest rate) can hinge on a number of factors, including your:
- Credit worthiness
- Employment history
You can often go through the loan pre-qualification process online or over the phone, and there is usually not cost to do so. The next step in the process, becoming pre-approved, can involve more in-depth information, including the lender running a credit check, as well as a review of your pay stubs, tax returns, savings and investment account statements, and other relevant financial data.
Many lenders will provide you with a conditional commitment in writing, which can give you a great deal of leverage. It can also give the seller more assurance that you are a serious purchaser.
Mortgage financing is an important part of the overall home buying process. If you’re ready to look for your next dream home, or even if you have more questions about how you can prepare yourself for moving forward, Contact Us and we’ll be happy to help.