You Thought Being Pre-Qualified Was Enough? Think Again.
Despite the fact that we are living in an ever-changing market where interest rates fluctuate faster than the tides in the ocean at Sandy Beach, there is one thing that hasn’t lost its steadfast reliability in the homebuying industry… The handy-dandy “Pre-Approval letter”.
What, might you ask, is so great about a Pre-Approval letter? Didn’t you just get a Pre-Qualification letter on beautiful, official letterhead last week from your lender? Ho ho, my friend. Let’s take a look at the difference between the letters, and the difference it will make when you are walking through the homebuying process.
What is a Pre-Qualification Letter?
Chances are, if you have ever applied for a mortgage, you will have had a neat stack of questions to answer, including a form that requests information about your assets, your debt, your income, and other pieces of information that help your lender to read the pages of your financial story. The lender will review your information, process it, and give you an estimate of how much you can expect to borrow, packaged neatly in the form of an official-looking letter with information about how much money you might be able to borrow as well as contact information about the lender.
As humans who live in the age of instant gratification, we like the pre-qualification process because it’s pretty painless. You answer a few questions, provide a few estimates on your gross income and approximate your expenses. It takes just moments to deliver the information over the phone or a simple online form, then you get an answer in a few minutes or a few days!
The information provided to you in the letter will give you and your real estate advisory team (including your real estate agent, mortgage lender, and maybe your bestie) the chance to discuss your goals for your finances and options that you have in regards to price ranges on a home.
The Almighty Pre-APPROVAL Letter
So what’s so great about the Pre-Approval letter if I already have a Pre-Qualification letter? Well, my friend, put your Pre-Qualification up against a buyer who has a similar financial situation as you but has a Pre-Approval letter in hand, and you will lose the battle for that beautiful dream house 9 out of 10 times.
The Pre-Approval process is a bit more involved, requiring a few EXTRA steps (Really? Extra work? C’mon, how hard can this be?). You must supply the lender with documentation that may or may not include tax records, bank statements, bills that display a history of your expenses, and other specific information as it pertains to your finances. Once you fill out the official mortgage application and provide the necessary paperwork, the lender will perform a credit check as well as look behind the curtain of your finances.
Because this process provides a conditional guarantee from your lender, the extra time to collect documents is worth it since you will receive a more exact snapshot of what kind of interest rate you will pay as well as specifics on your loan fees and other related expenses. You will receive a letter for the exact amount that you qualify for. The letter expresses to the buyer that you are APPROVED and ready to go. Think of it as a virtual “guarantee” that the lender will approve you for the loan once your purchase has been made, pending the escrow process which we have outlined in another article.
So, What’s the Big Deal?
Well, the big deal is that you could potentially lose the deal with a Pre-Qualification versus a Pre-Approval. The problem with Pre-Qualifications is that it is based on stated income, stated expenses, and stated assets, etc. Have you ever “stretched the truth” about your income on a credit card application? Or “conveniently forgot about” the bank account that no one knows about except you? It’s a harsh truth, but humans sometimes color outside the lines when painting the full picture of their financial health. Throughout homebuying history, there have been instances of consumers stretching the truth about their credit scores or income, and as a result, their Pre-Qual letter said that they qualified for much more than they actually did.
Ok, What Do I Do? Pre-Qual or Pre-Approval?
The correct answer? Do both. If you are honest with your lender about your financial situation, then the Pre-Qual letter will open your eyes to the possibilities before you fill out the app. But once you are ready to jump in and unlock doors with your hands instead of shopping with your eyes, the Pre-Approval letter will take the place of the bestie on that aforementioned real estate advisory team.
Our Commitment to You
Here at Aligned Mortgage, we won’t waste your time. Our goal is to help as many veterans as we can to get educated about the VA Home Loan process so that they can own a piece of the country that they fought to defend. We provide Pre-Approval letters as a standard part of our procedure. Why? Because we know the power of the PA. And we have helped thousands of Veterans purchase a home across the United States. In our experience, it makes all the difference, so we help you at every step along the way.
Take the first step and get Pre-Approved today. VA home loans. It’s what we do!
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