You already know that you need to get approved for a mortgage to buy a house in Milwaukee. Did you know that mortgage pre-qualification and pre-approval are not the same?
When buying a house, the best thing would be to just take the cash out of your pocket and pay for everything at once. However, this is not a realistic option for any traditional buyer looking to find a home for themselves. This is why getting a loan from the bank, also known as mortgage, is crucial. Securing mortgage pre-qualification and pre-approval is also important, as this is the proof to the seller that you can afford their house.
However, many home buyers don’t realize that mortgage pre-qualification and mortgage pre-approval are two very different things. While one is the guarantee that you’ll get the required funds, the other one isn’t as worthy. What’s the real difference between the two, and which one should you insist on getting?
To get a mortgage pre-qualification, you need to inform your lender about your finances, including your credit score, your income, and any debt you might possibly have. After this, the lender will let you know if you can take a loan of a certain amount. What’s the catch?
To get a mortgage pre-qualification, you don’t need to provide any evidence or paperwork. The only thing a lender needs is your statement, and that’s it. Because of that, mortgage pre-qualification is just an approximation, and not a promise or a guarantee, that you’ll get the money you require. The lender only does an analysis based on the information you have given him. They don’t take your credit report into the account and they don’t look past the statements you’ve said. In other words, there is no way they can know whether you’re telling the truth or not.
A mortgage pre-qualification should be considered an official information on the size of your loan according to your statements. It can be helpful if you want to know how much mortgage you can approximately get. However, it won’t mean anything to a home seller.
On the other hand, mortgage pre-approval is a guarantee from your lender that you’ll get a mortgage of a certain amount – if your finances don’t change until the moment of closing the sale. Getting pre-approved is much more difficult than getting a pre-qualification, as it involves much paperwork and reviews.
First, you have to provide your lender with all the necessary documents proving your financial power. This includes your credit report, proof of income, and bank statements that show you have enough cash for a down payment. The lender might even call your place of work to ask about you, looking for proof of payments, but also checking if you are a reliable person. If you’ve recently changed jobs, you can expect them to call your former place of work, as well. Then, the underwriter will make a review of all your finances.
The important thing is that your finances need to remain stable until all the documents are signed and you’ve bought the property you’ve desired. This also means moving money from one bank account to another, and opening new lines of credit. All of this can damage your chances of getting approved for a mortgage.
Which One Is Better?
Many people think that mortgage pre-qualification is a proof enough that you’ll be able to get the finances you need. Others think that mortgage pre-qualification and pre-approval have the same value, or that you need to take both to get approved for a loan.
In short, mortgage pre-qualification isn’t a guarantee of any kind. Most real estate agents and home sellers will say that they don’t even care about it, and that you can take that paper and throw it in a trash. Just because you are pre-qualified, you can still end up not getting the loan you’ve applied for.
On the other hand, mortgage pre-approval means that you will get the money when the time comes. This can give you the upper hand, as the seller knows that the sale won’t fall through due to you not qualifying for finances. In fact, many sellers won’t even look at the buyers without a pre-approval letter.
What Documents You Need to Provide for Mortgage Pre-Qualification and Pre-Approval?
As we’ve already mentioned, there are no documents needed for mortgage pre-qualification. However, if you want to get pre-approved, you will need to provide some paperwork, and this includes:
Proof of Income – W-2 wage statements, pay stubs, proof of additional income, tax returns for previous two years
Proof of Assets – Bank statements
Credit Report – a FICO score of 620 or higher
Proof of Employment
After you provide these documents, the underwriter will make a report, determining if you are able to get a loan and at what amount.