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There are some significant differences between being Pre-Qualified and being Pre-Approved.
THIS POST MAY CONTAIN AFFILIATE LINKS READ MY DISCLOSURE PAGE FOR MORE INFO
In this post, you are going to learn the differences between “Pre-qualification and being “Pre-approved.”
HOW PRE-APPROVAL WILL HELP YOU
If you have a pre-approval letter from a lender it will show real estate agents and sellers alike that you have taken initiative.
You know who your lender is. You know how much you can borrow.
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You are prepared. Rawr.
This can give you a leg up on others who have not “done their homework” and this move on proactivity is advantageous.
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BEING PRE-QUALIFIED: WHY IT DOESN'T MATTER
This process is actually quite breve and doesn’t take much supporting documentation (if any).
Becoming pre-qualified can be done online and can take as little as 5 minutes. All you need to know if your basic income information and how much you’d like to borrow.
Being “pre-qualified” does not have much weight (again, if any) in the home buying process. This is why I encourage to become pre-approved.
BEING PRE-APPROVED: THIS IS WHAT COUNTS
This will take far longer than 5 minutes but the pros are very important to having leverage. And leverage is what you want in this process and every area of life.
The process is quite standard as it follows this progression:
- You input data (income, debts, employment history)
- You provide supporting documentation
- The lender performs a hard credit inquiry
- Your employment will most likely be verified
After all these are completed (it can take 3-14 days or more, when I applied for a mortgage it took about a week) and everything looks to be in order the lender will send you a Pre-Approval letter.
Woo hoo! Now you’re REALLY ready to conquer this home buying process.
ASIDE: HONESTY IS KEY, IT’S NOT 2006
The rules and best practices have become far more strict following our subprime mortgage and credit default swap crisis of 2008. So, if you only make $60k, don’t write down 75k on the application.
If you are denied for a larger mortgage payment this could very well be a blessing in disguise. Although it may “feel” like you can make the payment living within your means in regard to your housing payment will give you far more peace of mind in the future.
WHAT IF I’M DENIED?
That’s okay! Don’t get down on yourself. It could be as simple as asking for a lesser amount on your mortgage OR saving up more of a down payment. Again, this process takes time so take heart and be patient.
WHAT IF I’M APPROVED
You know have a SUPER thick cardstock 8.5×11 with a trendy logo saying you are APPROVED.
But don’t grab the champagne quite yet. We still have lots of work to do before you’ll be moving into that dream home.
SESSION 4 ACTION STEPS
- Use a lender you prefer and get a pre-approval letter (PAL)
Always Moving Forward,
As a certified credit counselor and syndicated writer at MaxMyMoney, Max has coached over 250 Millennials to help take the stress out of money. When Max is not coaching, you'll find him reading financial books, indoor cycling, or visiting local pawn shops looking for swiss-made watches.