You’ve decided that it’s time to buy a home. Congratulations! Whether this is your first time buying a home or you’ve done it before, there’s a chance you are hearing terms like “pre-qualification” and “pre-approval” used almost interchangeably as you measure your buying power and develop your financial strategy.
In short, both processes are necessary to determine your budget and begin to narrow your search for homes you are comfortable buying. One, however, will be much more convincing to a seller when you submit your offer on that house you absolutely can’t live without.
How Much House Can I Afford?
Your first steps towards buying a home start with getting pre-qualified for a mortgage. This will involve some gathering of basic information by your mortgage lender, such as employment history, income, credit score, and a summary of all your debts (car payments, credit cards, student loans, etc.).
Based on these data, your lender can get an approximate and accurate idea of the maximum monthly payment you can expect to pay when buying your home, as well as tell you all the other one-time and recurring fees associated with the mortgage.
This approximate determination is your pre-qualification, and is usually accompanied by a letter you can include with your next offer. It is, however, not a guarantee or commitment to lend. That’s the next step.
Why Get Approved?
When it comes to buying a home, no one likes surprises. Sure, they’re wonderful on Christmas and your birthday… but not on closing day. Getting your loan application finally approved by your lender’s underwriting department for a fixed purchase price will provide you with the security you need to shop for your new home without fear of bad surprises, and it will give the seller who reads your offer the same security; ultimately improving the chances of getting that offer accepted.
