The home buying process can be a long one, with many things that need to be done along the way. Obtaining a mortgage pre-approval first is a must in today's seller market, in Atlanta. But many buyers don't really know the difference between a Pre-qualification and Pre-approval. Here's what a mortgage pre-approval is, why it's important:
A mortgage pre-approval is essentially the same thing as applying for a mortgage, just without a specific home in mind. You go to a lender, fill out their application, and probably pay an application fee. The lender then runs a credit check, requests documentation about your income, assets, and employment history, and verifies all your information. They will then pre-approve you for a certain maximum loan amount, which is generally good for a specific amount of time (90 days seems to be common). You'll receive a pre-approval letter, which represents a firm commitment to lend you that amount of money for your home purchase.
No prospective home buyer start the process without one.
For starters, a mortgage pre-approval makes a submitted offer much stronger. You're essentially telling the seller "Hey -- I'm a serious buyer and actually have the ability to buy this home." And that's a must especially you are buying a home under 200k. Inventory is so low that multiple offers situation is the norm in this price range.
In addition, you'll know exactly how much house you can afford, so you can plan your home search accordingly. This way, there are no surprises when you fall in love with a particular home and then apply for financing, only to discover you can't afford it.
Also, you will be able to to get a better estimate of what your interest rate will be. See this chart:
A pre-approval also lets you know where your credit stands while there's still time to do a little damage control. It can take years to have a big impact on your credit score, but it's certainly possible to boost your score by a few points in a few months. As you can see in the chart above, an increase of a few points can make a big difference in the amount you'll pay over the term of your mortgage.
A pre-qualification is not the same thing!!
Don't be fooled -- a mortgage pre-qualification is not the same thing as a pre-approval. Not even close. A pre-qualification is jsut an informal process (Sometime its just over the phone) where you provide a lender information about your debts, income, and employment situation verbally, and they tell you how much of a mortgage you should qualify for. It is not a firm commitment to lend, and therefore does not carry as much weight with sellers. Do not accept any lender pre-approval or pre-qualification without the lender reviewing your income, asset and full Tri-merge credit information! I have seen so many buyers lose thousands of dollar and time only to find out their loan can't be approval days before closing!!
A pre-approval is the home buying tool that you want in your pocket as you begin the shopping process. Some sellers are even now require to see buyer's loan pre-approval prove before allowing home showing. And most of the reputable real estate firms require a loan pre-approval for taking you on as client. So be sure you're getting the real thing.
Contact me for a list of my trusted lenders in Atlanta, for a free complete loan pre-approval!
Source: Matthew Frankel
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