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To Be Pre-Qualified or Pre-Approved...'Tis The Question

You have been hearing your best friend's excitement about their new home and decide to start surfing Zillow or Trulia. Knowing how much you pay in rent, you jump on some generic goggle search mortgage calculator, plug in some numbers to make it match your monthly rent and WOW look what it says you can afford! You go back to Zillow and start finding homes and fall in LOVE! OMGosh, I have to have this!!! You dial up a realtor to schedule an appointment and the first question that is asked is "Have you been pre-qualified or pre-approved for a mortgage?" Your reply is no, but the mortgage calculator says I can afford $......

No bank letter, no showing appointment. Ok fine. You hang up and make a call to your bank, talk to a loan specialist and hours later you get an email. Excited to call the realtor and schedule your showing, you open the email and look.....WAIT...WHAT??? No, this can't be right. You call the loan specialist back frantically asking why the amount is different than the google calculator. You literally BEG the loan specialist to redo the application and make sure it is correct. The numbers are right, the amount does not change, and you are left heart broken because you started shopping before you knew what the realistic number was.

This scenario is very common and not specific to first-time home buyers. Want to prevent this from happening to you? Simple enough! Get pre-qualified or pre-approved for a mortgage loan even before you begin your home search.

What is the difference?

Loan Pre-Qualification - A loan specialist will ask some basic questions regarding your job, income and savings, current home/rent payment, and if anyone will be applying for the loan with you. Your credit score will be checked on the surface for any major blemishes and shortly after you will have an idea of what the bank may lend you for a mortgage. The pre-qualification is a surface check and does not do a full credit check that will show up on future reports or affect your credit score.

Loan Pre-Approval - This involves the same questions as above with proof of income in the form of pay stubs and W2's, bank statements, and a formal credit check. This credit check will show up on future reports. This takes a little longer as it is a more in-depth search of your current and past financial status.

While a loan pre-qualification is needed in today's home buying market, a loan pre-approval will hold more weight. The pre-approval will show sellers that you are truly serious about buying and have bank backing to prove it. If you have strong credit and equity before going to the loan specialist, then a pre-qualification should be suitable in most instances. If you have a lower credit score and have a smaller down payment, then it might be better for you to go the extra step for a full pre-approval. When the time comes to submit your offer, the seller won't view you as a risky buyer.

Don't lose out on your dream home or risk having your hopes crushed by shopping before talking to a loan specialist. One simple call can make the start to your home buying experience a good one!

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