When a borrower (you) applies for a home loan, the information you and your co-borrower, if any, submit starts the pre-qualification process. This process relies on this information that you provide to the lender. This usually includes your income, employment history, your outstanding debt, and your assets. Pre-qualification can usually be done quickly online or on a phone call with the lender. While pre-qualification is a part of the loan process, it is important to understand that it is not a guarantee of approval for a loan. The results of the pre-qualification give the lender the basics needed to move to the next step in the application process, pre-approval. Pre-qualification is usually done before or during the home shopping process, so that you have a better understanding of what you can afford.
During the pre-qualification process the lender will also advise the borrower whether a down payment is required, and if so, the amount of the required down payment. Though you should note that downpayment amount could change once the borrower goes under contract if the purchase price of the home differs from the amount the borrow is pre-qualified for their home loan.
Pre-approval is completed by the lender after checking the information given by the borrower during the application process. During pre-approval, the lender verifies the borrower’s employment history, credit score, debts, and assets through the documents such as paystubs, W-2s, 1099s, tax returns, bank statements, brokerage statements and additional information provided by the borrower. The pre-approval step can take longer than pre-qualification, because the lender may need to contact one or more sources listed on the loan application to verify that all the information is accurate. The results of this verification are used by the lender to decide on the applicant’s eligibility for the loan.
Once the lender provides the pre-approval documentation of the offered loan, the borrower will have a better chance of their offer being accepted once they find a property, as it assists sellers in knowing that the potential buyer’s offer is legitimately backed by a lender. Sellers prefer to deal with a pre-approved buyer, because they know that the buyer’s offer is legitimate and not contingent on the buyer’s obtaining financing, which can delay the sales process significantly.
While neither a pre-qualification or a pre-approval are guarantees of your ability to obtain a home loan, they are both good indicators of whether a loan will be offered to you by a particular lender. The red-hot housing market moves very fast, with some homes going from offer to sale in just hours! Having both a pre-qualification and pre-approval completed puts you in a far stronger bargaining position. Contact your United Heritage Loan Specialist at 512.435.4444 with any questions or to start your pre-qualification - we’re with you every step of the way!