If you’ve thought about moving your search from online to the real world of viewing houses in person, your next step should be reaching out to a lender or mortgage loan originator. Just like everything in life, there is the best way to do something and cutting corners is a recipe for disaster.
In a competitive market like we have in Vermont, with multiple buyers competing over the same home, having all your ducks in a row could be the most important thing you can do to set yourself up for success. It’s not only important that you are informed about your financial health and buying power, but sellers don’t want real estate agents showing their properties to buyers that can’t prove that they’re qualified to buy.
Knowing the difference between the two types of loan qualification might be the determining factor in which loan originator you choose to meet with since different lenders specialize in different methods. No matter which type you feel is best for you, a good mortgage loan originator can make the process painless, and if you do find it to bepainful, find another one!
Pre-Qualification vs Pre-Approval
Pre-qualification is the most common method used by mortgage loan originators. Often times you provide your income and other financial info and they pull your credit to check your FICO scores and other debt to calculate your ratios and home buying power. Once you find a home and make an offer you will need to include a contingency that your financing will be officially approved, in case something falls through with your loan. The bank then orders an appraisal and starts the process of verifying your income with employer and checks on other things in the “Underwriting” process. If everything you verbally shared during pre-qual checks out, then a CTC (Clear to Close) is issued a few weeks before your scheduled closing and you are officially approved. From the contract date in your offer, your lender can be prepared to close in roughly 45 days.
Pre-Approval is the lesser common option but has some major advantages. The underwriting and verification process is completed ahead of time and if approved you can start your shopping without a finance contingency needed when making an offer. You will have a leg up on other buyers by having fewer contingencies. From the contract date in your offer, your lender can be prepared to close in roughly 30 days.
With either type of qualification, you can search for a home with confidence and enjoy powerful negotiating leverage in one of the most competitive markets we’ve seen in a while.