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Should you be pre-approved or pre-qualified?
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As a potential buyer competing for a property, you'll have a better chance of getting your offer accepted by being as prepared as possible. Consider this hierarchy of preparedness:
- 1. Neither pre-qualified nor pre-approved
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- 2. Pre-qualified
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- 3. Pre-approved
The benefits available at each level can be easily understood when viewed from the seller's perspective. Imagine you're a seller in receipt of multiple offers to purchase your property. A complete stranger (buyer) is asking you to take your property off the market for at least the next two to three weeks while they apply for a loan. As the seller, let's consider the type of buyer you'd prefer to deal with.
- 1. Neither pre-qualified nor pre-approved
- This buyer provides no evidence that they can afford to purchase your property. You may wonder how serious they are since they're not at least pre-qualified.
- 2. Pre-qualified
- This buyer met with a mortgage broker (or lender) and discussed their situation. The buyer informed the broker regarding their income, expenses, assets and liabilities. The broker may also have seen their credit report. The buyer provided you with a letter from the broker stating an opinion of what the buyer can afford.
- 3. Pre-approved
- This buyer provided a broker or lender written evidence of income, expenses, assets, liabilities and credit. All information was verified by a lender. As a result, much of the paperwork for this buyer's loan has been completed. This buyer will probably be able to close quickly. They provided you with a letter (pre-approval certificate) from the lender. You're as certain as possible that this buyer can close.
As a potential buyer, you can see that being pre-approved will give you the best chance of getting your offer accepted. This is critical in a competitive situation. | | Final Loan Approval
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Perhaps you were pre-approved prior to or during your home-hunting activities. Pre-approval can take place in the absence of having identified a home to purchase.
When you enter into a contract to purchase your home, you begin the process of obtaining final loan approval. To convert your pre-approval to final loan approval, the main items the lender needs include the appraisal, purchase contract and title information. Your real estate agent, loan agent and attorney (where applicable) will be instrumental in providing these documents to the lender.
If you were pre-approved, you probably gave many of these documents (below) to your lender. Review the list to make sure the lender has current documents. If you're just beginning the approval process and the lender will be verifying your income, assets and liabilities, you'll need to gather these documents:
A. All Borrowers:
- Copy of purchase contract
- Copy of sales contract on real estate you are selling
- Divorce or separation documents
- Bankruptcy files
- Relocation agreement
- Copy of most recent Social Security check
- Award letter and copy of most recent checks for disability, retirement, or legal settlement
- Recent statements for all credit card accounts
- Bank and financial brokerage account statements for the previous three months
- IRA, Keogh and 401(k) statements for the previous three months
- Title documents for automobiles under five years old
B. Employed Borrowers:
- (Documents in section A.)
- Pay stubs for the previous 30 days
- W-2s for the previous two years
- 1099s for the previous two years
C. Self-Employed Borrowers:
- (Documents in section A.)
- Federal tax returns for the previous two years
- Year-To-Date Profit-and-Loss statement for your business
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