Why Get Pre-Approved?
Loan pre-approval, contrary to popular belief, is not for the agent’s benefit. Loan pre-approval is to prove a buyer’s credibilty to the seller. Real estate experts tell first-time home buyers that it’s critical to apply for a loan before shopping for a home because a loan preapproval is an essential first step. But do you know that it’s far better to be preapproved for a loan than to be prequalified?
The difference is significant.
Prequalifying for a mortgage is based solely on what you disclose to the loan officer or broker about your earnings, credit score and total assets, including what is available for a down payment. There is much less required information when you are pre-qualified in comparison to pre-approved.
“It’s verbal — it doesn’t really mean anything,” beyond providing some basic guidance on the range of prices you may be able to afford, said Kevin Chittenden, a vice president and regional sales manager in Paramus, N.J., for Wells Fargo Home Mortgage.
A pre-approval, by contrast, requires borrowers to provide documentation of their income and their assets.
The lender typically pulls your credit report and score, and you should gather together almost everything you will need for the actual mortgage underwriting: W-2 wage statements; 1099s, which show things like dividends and interest income; recent pay stubs; bank statements; and statements from Individual Retirement Accounts and 401(k)s and other assets that could show you have the resources to buy and maintain a home.
Enjoy a Faster Closing Period
Because there is no window period while your loan application is processed, the lender can speed up the entire processing procedure. Appraisals can be ordered immediately. It’s possible under certain circumstances to shorten a 30-day closing to two or three weeks, which comes in handy if a seller needs to quickly move and can’t decide which offer to accept.
Your purchase offer will undoubtedly move to the front if you can accomplish the seller’s need to quickly close.