Pre-Qualification vs Pre-Approval
Are these words just real estate lingo similar to a doctor using the word “stat” instead of hurry or a coach using the word “hustle” instead of work harder? Not at all! For the savvy home seller and home buyer, this is lingo they want to pick up on quickly! In the fast-paced housing market of 2021, this knowledge can make all the difference. So, what do they mean, and how do they help you buy and sell your home?
These two terms do not have the same meaning. Pre-qualification is your initial conversation with a lender. This takes place when you have spoken with a lender and given them basic information about your financial history. They will make an estimate based on the information that has been supplied. The information is not verified by the lender nor is he guaranteeing a loan. The lender is making an estimate based on the parameters set by the lending institution. So, why go through the process? This actually gives the buyer an opportunity to interview lenders, find the one that best fits their needs, and weigh which lender can give them the better deal.
In contrast, a home loan pre-approval is actually a commitment from the lender. The process is similar in that a buyer must give information to a lender. This can include a copy of your driver’s license, social security card, bank statements, proof of income, tax returns and W-2 and/or 1099. These documents prove your income; however, a lender wants to know about your debt as well. A buyer’s debt-to-income ratio plays a crucial role in the lenders decision to grant approval. In addition, the lender will also check the buyers credit score. A higher credit score does open up more opportunities, however, there are still many opportunities for those with a less than flawless credit history. All of this information is verified by the lender. Once they have a picture of a buyer’s overall credit health, they will approve that buyer for a loan up to a certain dollar amount.
Important for Both Buyers AND Sellers
How does this help you on either side of a real estate transaction? As a seller, you want to know that the buyers coming in and out of your home actually have the ability to purchase your home. Sellers can request proof of funds or a pre-approval letter from those interested in viewing or making an offer on your property. As a buyer, this puts you in the driver’s seat. You will know exactly what your budget allows. You will also be in a strong position to make an offer and submit your “ability-to-purchase with that offer. This speaks volumes when sellers are considering multiples offers placed on their home.
The real estate market can be fast-paced, with a lot of details to understand and quick decisions to be made. Mike and Brandie Brown along with the whole Josh Vernon Group are here to slow things down, educate buyers and sellers, and make the process of finding your dream home simple, stress-free, and fun.
Brandie Brown with the Josh Vernon Group shares useful information that all buyers and sellers need to know!
The Josh Vernon Group has served Trussville and surrounding areas since 2010 with more than 2,000 sales!