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E. Lee Smith's Blog

By E. Lee Smith | Mortgage Broker
or Lender in Austin, TX
  • Pre-Qualification or Pre-Approval?

    Posted Under: Market Conditions in Texas, Home Buying in Texas, Financing in Texas  |  February 8, 2014 11:28 AM  |  337 views  |  No comments

    The terms "pre-qualification" and "pre-approval" are often used interchangeably. Ultimately, being pre-approved for a home loan is the way to go, but first let's take a look at pre-qualification. Here is how pre-qualification works. You call up a mortgage professional and provide your basic financial information including: annual income, years of employment, debts, money available for down payment, credit status and other financial details. The pre-qualification process is very informal. Your mortgage professional will take your word that the information you provide is correct and that there are no omissions of important information. There is very little objective verification during the pre-qualification process; the pre-qualification is based on your word and the information contained in your credit file, that's it. Because the majority of information is not actually verified, pre-qualification is not worth a lot. In fact, a lot of the best real estate agents refuse to work with clients who are only pre-qualified because the buyer is often disqualified during the home loan application process. It's important to go through the pre-approval process so that your real estate agent and sellers will take you more seriously as a buyer.

    The reason why a pre-qualification can be preferred is a matter of timing. If you're looking to make an offer today, the pre-qualification can be issued within minutes. Often the agent will not want to invest too much time into a potential buyer, without knowing that they have been at least pre-qualified. The trouble with pre-qualification is that the information you provide to the mortgage lender might not hold up as well as you thought that it would. There are many potential problems that can come up through the interview process. The quality of the pre-qualification depends wholly on the quality of questions asked and answered.

    The only way to be reasonably certain that you will be approved for a home loan is to get pre-approved. Pre-approval allows you to shop with confidence, knowing how much house you can afford right at the outset. Even better, a pre-approval letter is solid gold in the real estate business. A seller will be much more likely to accept your offer because they know that you have the ability to obtain the needed financing to make the deal go through.

    Getting pre-approved can also save you money. Here is how it works. With your pre-approval letter in hand, you make an offer on a house that is below asking price. Another buyer offers asking price but that buyer is not pre-approved. The seller's real estate agent encourages the seller to take the lower offer, knowing how often buyers who are not pre-approved are unable to secure financing even though they very much want the home. The seller accepts your offer, and you just saved a few thousand dollars, obtaining the house for less than what another buyer was willing to pay. Pre-approval gives you a status on par with a cash buyer. A pre-approval gives you more negotiating clout.

    So what is entailed in getting pre-approved? Pre-approval differs from pre-qualification in that your financial information is verified by your lender. Your credit is pulled, employment confirmed, and you produce important documents such as pay stubs, W-2 forms and asset documentation. Your application is then submitted to the lender's underwriter for approval. It may take a few extra days, to issue the approval, after documents are submitted but it's worth the time and effort.

    If you are going to finance a home, you are going to have to go through this process anyway, so you may as well get it over with. In addition to knowing exactly how much house you can afford and securing a major negotiating chip, pre-approval also saves you from running around, like a chicken with it's head cut off, trying to gather all of your documents at the last minute, in order to meet the closing deadline. Since there is no cost to you, having a pre-approval really is all upside.

    Please contact me directly, if you have questions or are in need of a pre-approval. I appreciate your time and consideration, for reading this blog and I wish you the best for your home search and financing experience!!

    Thank you and best regards,

    E. Lee Smith 512-948-6550

  • Pre-Qualification or Pre-Approval?

    Posted Under: Market Conditions in Austin, Home Buying in Austin, Financing in Austin  |  October 14, 2013 5:24 PM  |  361 views  |  No comments

    The terms "pre-qualification" and "pre-approval" are often used interchangeably. Ultimately, being pre-approved for a home loan is the way to go, but first let's take a look at pre-qualification. Here is how pre-qualification works. You call up a mortgage professional and provide your basic financial information including: annual income, years of employment, debts, money available for down payment, credit status and other financial details. The pre-qualification process is very informal. Your mortgage professional will take your word that the information you provide is correct and that there are no omissions of important information. There is very little objective verification during the pre-qualification process; the pre-qualification is based on your word and the information contained in your credit file, that's it. Because the majority of information is not actually verified, pre-qualification is not worth a lot. In fact, a lot of the best real estate agents refuse to work with clients who are only pre-qualified because the buyer is often disqualified during the home loan application process. It's important to go through the pre-approval process so that your real estate agent and sellers will take you more seriously as a buyer.

    The reason why a pre-qualification can be preferred is a matter of timing. If you’re looking to make an offer today, the pre-qualification can be issued within minutes. Often the agent will not want to invest too much time into a potential buyer, without knowing that they have been at least pre-qualified. The trouble with pre-qualification is that the information you provide to the mortgage lender might not hold up as well as you thought that it would. There are many potential problems that can come up through the interview process. The quality of the pre-qualification depends wholly on the quality of questions asked and answered.

    The only way to be reasonably certain that you will be approved for a home loan is to get pre-approved. Pre-approval allows you to shop with confidence, knowing how much house you can afford right at the outset. Even better, a pre-approval letter is solid gold in the real estate business. A seller will be much more likely to accept your offer because they know that you have the ability to obtain the needed financing to make the deal go through.

    Getting pre-approved can also save you money. Here is how it works. With your pre-approval letter in hand, you make an offer on a house that is below asking price. Another buyer offers asking price but that buyer is not pre-approved. The seller's real estate agent encourages the seller to take the lower offer, knowing how often buyers who are not pre-approved are unable to secure financing even though they very much want the home. The seller accepts your offer, and you just saved a few thousand dollars, obtaining the house for less than what another buyer was willing to pay. Pre-approval gives you a status on par with a cash buyer. A pre-approval gives you more negotiating clout.

    So what is entailed in getting pre-approved? Pre-approval differs from pre-qualification in that your financial information is verified by your lender. Your credit is pulled, employment confirmed, and you produce important documents such as pay stubs, W-2 forms and asset documentation. Your application is then submitted to the lender's underwriter for approval. It may take a few extra days, to issue the approval, after documents are submitted but it's worth the time and effort.

    If you are going to finance a home, you are going to have to go through this process anyway, so you may as well get it over with. In addition to knowing exactly how much house you can afford and securing a major negotiating chip, pre-approval also saves you from running around like a chicken with your head cut off trying to gather all of your documents at the last minute in order to meet the closing deadline. Since there is no cost to you, having a pre-approval really is all upside.

    Please contact me directly, if you have questions or are in need of a pre-approval. I appreciate your time and consideration, for reading this blog and I wish you the best for your home search and financing experience!!

    Thank you and best regards,

    E. Lee Smith 512-948-6550

 
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