If you haven’t noticed already, you will soon: there’s a lot real estate jargon. There are subtle differences between a lot of different terms but each holds its own meaning and implication. Arm yourself with this knowledge as you enter the world of real estate and you’ll be more confidence and less likely to be put in a tough situation.
When you are talking to a lender about how much money they will be able to provide you, they can administer a pre-qualification or a pre-approval.
Which is better?
Pre-qualification means you’ve had a conversation with the lender and based on the information you’ve shared with them they tell you you qualify for a certain amount, solely based in the good faith that you’ll be able to back up your claims of financial situation. They haven’t actually received any of your supporting paperwork, like tax returns or bank statements.
THE PROBLEM IS: Agents are not going to fully trust someone who has only been pre-qualified when it comes to accepting a serious offer because it shows the lack of serious commitment. It would be heartbreaking if you found the right house, get an offer accepted and then find out that your financial information doesn’t match what you thought after you shared your documents with the lender. Don’t waste your time or anyone else’s house if you haven’t been at least pre-approved.
Pre-approval are just pre-qualifications with provided documents that can support the information you’ve shared about your financial situation.
Pre-approvals are only good for three months and will need updated documents after that time if you haven’t found and secured a home. Good news is that it DOESN’T COST YOU ANYTHING to get pre-approved or to get re-pre-approved.
AMANDA ADVICE: Keep a digital file of your past tax returns, bank statements, pay stubs and any other docs you send back and forth with the lender. It’ll make your life easier down the road. They will ask for it.
Get serious and get a pre-approved when you decide you’re interested in looking for a home. Your lender isn’t asking for your supporting documents just for fun. They are used to ensure that you save time and energy when you find that dream home you’ve been looking for.