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Why You Should Get Pre-Approved vs Pre-Qualified

Finding and hiring the right sub-contractors to work on a recent home rehab project, turned new construction project, was one of the toughest and time-consuming steps of the process. I spoke with dozens of companies during that time and was amazed at the different levels of professionalism demonstrated by each company. This experience was very different from the business dealings I was accustomed to while working for Fortune 500 and 1000 companies. I had to adjust quickly. There were some companies who shared tons of verifiable data with me which increased my confidence in their abilities to complete the project. These companies presented packages that included copies of their business licenses, business insurance as well as contact information for their customers with written testimonials. On the flip side, I spoke with companies that didn’t share any verifiable information which greatly reduced my confidence in their ability to complete the job. The companies that had the most verifiable and favorable information always won the bid.

Likewise, a seller and their agent look for evidence that a buyer can purchase the home when an offer is received. Almost 6 in 10 sellers have some level of urgency to sell their home within a certain timeframe[1]. As a result, they need assurance that the buyer is able to close before accepting an offer. One tool that is used to help them decide is the Pre-Approval Letter. Getting Pre-Approved requires a buyer to share documents with the lender that will verify their financial information, such as a copy of a W-2, credit reports and bank statements. On the other hand, Pre-Qualification is only based on reported information from the buyer, so the level of confidence that a closing will take place is lower. Sharing verification documents with the lender does not lock you in to using their services. This is important because it is recommended that you get at least 3 quotes, from different lenders, to ensure you have the best deal. The good news is, once you go through the process once, you will already have the information ready for the next lender.

 

Confident Home Buyer Tool Kit Tips:

  • Getting Pre-Approved rather than Pre-Qualified is recommended because it puts you in a stronger position during your home search. Although it is not a guarantee that a mortgage will be given, a Pre-Approval Letter communicates to the seller that the lender has verified that you are financially able to close.

  • Pre-Approval requires a buyer to share documents with the lender, verifying their financial information, such as a copy of a W-2, credit reports and bank statements.

  • Pre-Qualification is only based on reported information from the buyer, so the level of confidence that a closing will take place is lower.

  • Obtaining Pre-Approval vs Pre-Qualification will also help you close faster because a great deal of your information is already in the lender’s system.

  • Completing Step 5: How Much Home Can You Afford of the Confident Home Buyer Tool Kit is a critical step in getting you prepared for Pre-Approval as well as for your home search. If you have not done so yet, get started today.

 

Do keep in mind that getting Pre-Approved is not a guarantee that you will get a mortgage. There are other variables that can influence the decision, such as a poor appraisal or a change in your financial situation. However, taking this step will allow you to compete better instead of just being Pre-Qualified. In a seller’s market, when there are more buyers than there are sellers, having a Pre-Approval will increase your chances of getting your offer selected. A home of interest can have multiple offers by the time you submit yours, so being Pre-Approved can help you stand out from the crowd.

Another reason to get Pre-Approved vs Pre-Qualified, is to help you close faster. This is mainly because a great deal of your information is already in the lender’s system. The more information shared with the lender, the faster they can move through the process. The loan underwriter, the person who is legally responsible for verifying all documents for the purchase, goes through all pertinent information in great detail, so the earlier you start the process the better.

Getting Pre-Approved rather than Pre-Qualified is recommended because it puts you in a stronger position during your home search. Although it is not a guarantee that a mortgage will be given, a Pre-Approval Letter communicates to the seller that the lender has verified that you are financially able to close. In addition, getting Pre-Approved gives you a head start on the closing process, which means getting into your new home faster. Completing Step 5: How Much Home Can You Afford of the Confident Home Buyer Tool Kit is a critical step in getting you prepared for Pre-Approval as well as for your home search. If you have not done so yet, get started today.

 

Denise Johnson, MBA, REALTOR®, is often referred to as a "Data Nerd" by family and friends and has a gift for seeing the important facts of a situation. She aims to fit all the pieces of the jigsaw puzzle together into a complete picture, making it easier for herself or anyone she counsels to make sound and rapid decisions.


After 10+ years of working for multiple Fortune 500 and 1000 companies across Logistics, Finance and Marketing, Denise made the leap into the Real Estate Industry hoping to help others achieve their homeownership desires. She can remember purchasing her first home at the age of 23, and it being both a time of joy and stress because she didn't fully understand the process and the implications of owning a home. Since then, she has owned and sold multiple personal properties, including selling an investment home that turned from a Rehab to a New Construction project in 2020. She has a desire to share all that she has learned and continues to learn with future customers to tip the scales towards a joyous homeownership and home-selling experience.

When she is not busy finding solutions in business, she loves large get-togethers with friends and family, international travel adventures with her hubby, and growing her passion for gardening and cooking healthy recipes.

 

[1] Copyright ©2020. 2020 Home Buyers and Sellers Generational Trends Report. NATIONAL ASSOCIATION OF REALTORS®. All rights reserved. Reprinted with permission. March, 2020. Link to Study.

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