Friday, February 24, 2012

PreQualified Vs PreApproved to Buy A HOME What's the Difference You Ask?

I get this question all the time and it’s a good one. It’s very important if you are thinking of buying a home to understand the difference and to know the process of both. Understanding what is required of you early on will help you to adjust and have the confidence you need to meet your goal of homeownership. Whether you plan to purchase in a year or 30 to 60 days it’s a good idea to get your ducks in row and plan. Set yourself up for success and know your obstacles in advance so you can tackle them one at a time to meet your goals. If you have no obstacles great! You are a rare bird, but great!
OK enough said the difference between PreQualified and PreApproved?

PreQualified; This procedure is done by looking at your credit, either a report you may have or one I would pull on your behalf.  It is important you are careful to not have too many inquiries on your credit report during this time. So limiting the amount of times your credit is pulled is very important. You would fill out the short version of the loan application. Than we would gather information from you, starting with federal tax returns, current paycheck stubs and any other forms of income documentation needed to average your income over two years. We would check all liabilities either against the credit report or a list given to us by you. This list of debts is only from creditors that report to all three of the major credit reporting agencies. We are not interested in debts like your electric, phone and other misc bills and living expenses. Depending on how close you to purchasing we would ask for bank statements for verify funds for down payment and reserves. We would verify employment. But mostly we would run your income against your debts and come up with a debt ratio and see if you were in line with Fannie Mae and Freddie Mac guidelines for whatever type of loan you were going to be applying for with your purchase. If your numbers were in line, I would then be able to tell you the dollar amount you could qualify to purchase. I would also be able to give your Realtor that amount and a letter for the same. This letter does not hold as much weight as a Preapproval letter and is not a commitment to lend.

Most experienced Realtors like to have their clients PreQualified before they start working with them. Think about that for a minute, it makes perfect sense and very smart on their part. Realtors spend a lot of time, energy, money and gas showing a buyer property, sometimes this process can take months. Then to finally find a property put in an offer, get under contract, open escrow only to find out the buyer you’ve been working with for the past 3 or 6 months doesn’t qualify for a loan…. Oh my gosh! Well let just say you don’t want to be that person!

PreApproved; or (NOLA) Notice of Loan Approval. This process takes prequalifying a step further and is more defined. In this process we actually upload your information full application and income docs to Fannie Mae (DU) or Freddie Mac (LP) for an automated approval once we have this we can submit to a lender and program of choice. We would get a written verification of deposit for funds to close escrow and verification both written and verbal for employment. With this done we can write a letter of approval that your Realtor can submit with any offer and you are good to go. The conditions for the loan at this point would be inspections, appraisal and your final walk through of the property
To learn more about the Home Ownerships visit my website and view the Video

I hope this information has cleared this up and given you some insight on the difference between the two. .  It is important to understand that a pre-qualification letter is just an estimate of what you are eligible to borrow, not a commitment to lend. Getting pre-approved for a loan gives you competitive advantage when the time comes to bid on a home because you have been approved for a loan for a specified amount.
Remember to start early in your planning, you can never be too prepared.
Your comments are always welcome and encourages, please follow my blog for more information and future posts.

Roxy Redenbaugh
ACMC Loan Consultant
Branch Manager

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