In a fast-paced market like this one, it’s crucial for a buyer to have the right tools when submitting an offer. One of those is proof of funds, and if you’re financing the purchase of a home through a loan, the proof of funds will come in the form of a mortgage pre-approval or mortgage pre-qualification. With such similar sounding terms, it’s hard to know the difference between the two which is why we are here to tell you!
First, you’ll need to find a lender. There are many ways to find a lender, but how do you find a great one amidst a sea of financing officers? The real estate agent you’re working with will likely have more than one mortgage lending partner. You can also ask your family and friends who have recently purchased a home who they worked with and why they liked/disliked the service or the loan terms they received. Consider choosing a local lender as well. Real estate requirements vary not only by state, but also by town. Choosing a lender that is local can assure they are familiar with any regulations and know how to work with the title company, appraiser, and other locally-based companies involved in the transaction. Don’t forget to ask about any down payment or closing cost assist (we have some listed in last week’s blog post about available grant programs). A lender with a wide range of availability is also advantageous. We can’t emphasize how fast-paced this market is, and if your lender doesn’t take your phone calls or answer emails quickly, find a new one. Remember that although we want to work swiftly, being respectful of your lender & real estate agent’s availability is still best practice as we discussed in our post How To Become Your Realtor’s Favorite Client article. All of the details outlined in this paragraph are tips to help you secure the best proof of funds for you in the right amount of time.
Now it’s time to talk about the difference between the two types of proof of funds. A pre-qualification is just how it sounds. It is pre-qualifying you based only on the information provided to the lender, plus the lender runs a credit check. When you pre-qualify, you’re getting an estimate of what you might be able to borrow based on the information you provided. If you’re in a hurry, a pre-qualification can be a viable option as you can typically get one from a lender within 24 hours.
Although a pre-qualification is a quick fix, a mortgage pre-approval can help strengthen your offer. With a pre-approval, a lender would have received an application and is able to verify the information you provided about your income. The lender runs a credit check in this case as well. A seller’s agent will know that a pre-approval is the result of a lender taking a deeper look into your finances vs. only pre-qualifying based on what you stated your funds were. The speed at which you can receive a pre-approval is dependent on the lender, and that is why we said it’s important to pick a lender who is quick to respond and able to issue documents efficiently. If you’re looking to get a pre-approval, you’ll need all your ducks lined up with your finances. By this we mean make sure you have your tax returns, proof of income, proof of assets, employment verification, or anything else contributing to your finances.
We’ll briefly mention a mortgage commitment, which is relevant when you get under contract for a home. The mortgage commitment is given when an agreement has been signed, the buyer has completed their mortgage application, and the lender has verified the buyer’s information and are stating they will lend a certain amount of money on a specific property (the property you intend to purchase). Your real estate agent will set a deadline in the contract for the mortgage commitment to be issued by the lender.
Now that you know the difference between a mortgage pre-qualification and mortgage pre-approval, it’s time to get one and start your home search! If you still have questions, reach out to our team!
Stephanie Slapin
March 10, 2022