Pre-Qualification vs. Pre-Approval: What You Need to Know before the House Hunt Begins
By Keith Loria
Planning ahead and being prepared is the name of the game when it comes to finding real estate success. Therefore, before you begin seriously shopping for a home, it’s always a good idea to go over your finances and determine what you can truly afford. Having an exact figure in mind from the beginning will go a long way toward making it easier for you and your real estate agent to seek out the best house in your price range.
That’s why getting pre-qualified or pre-approved for a mortgage is so valuable, especially in today’s competitive market. However, it’s important to understand the difference between these two terms, as they don’t mean the same thing.
When a homebuyer is pre-qualified, the lender determines how large a loan the buyer can afford by looking at basic information related to income, balances and payments on current debts, and how much money has been saved for a down payment.
From there, qualifying ratios are applied to the numbers and the lender offers an estimate of what percentage of your gross monthly income can be used to pay for the home loan and attached expenses.
The key thing to remember here is that the lender is offering an estimated amount it would approve, meaning there’s no guarantee. It’s merely an educated guess on the part of the lender based on a quick appraisal of the facts. And if you’re not honest when it comes to sharing your financial information, it could come back to hurt you in the end.
On the other hand, when a mortgage is pre-approved, it involves a much more stringent examination into your finances. During pre-approval, the lender examines and verifies your debt, income, savings, assets and credit report to ensure you can repay the loan amount. Taking the time to go through this process shows sellers that you have indeed been approved for a loan of a certain amount.
While pre-qualification is really just an educated guess of a homebuyer’s purchasing power, a pre-approval goes one step further, guaranteeing that the prospective borrower would be approved for the loan. That’s why sellers prefer to negotiate with pre-approved buyers because they already know the buyer is financially qualified to obtain the financing they need to close the transaction.
Going through the pre-approval process also lets your real estate agent know you’re serious about purchasing a home and won’t have any last-minute financial problems that could hold up a deal.
In the end, it’s important to remember that pre-qualifications simply provide a quick way to show a seller that you’re a viable candidate for buying a home. Additionally, a pre-qualification will get your mindset focused on gathering all the financials you’re going to eventually need. Once you’ve been pre-qualified for a mortgage, it shouldn’t stop you from taking the extra step and getting a pre-approval letter.
Contact our office today to learn more about pre-qualifications and pre-approvals.
Reprinted with permission from RISMedia. ©2013. All rights reserved.
Selling Your Home: What is Silent Fraud?
By John Voket, RISMedia Consumer Confidant
If you are planning to sell your home this year, I want to bring you up to speed on an important responsibility—to present your home in as positive and honest light as possible.
Joy Watts, a real estate professional in Kalamazoo, Mich., recently blogged about 'nondisclosure' and why consumers need to be fully educated about this important piece of terminology, which is also referred to as “Silent Fraud.”
According to Watts, if you are a seller, you will be asked by your real estate professional to fill out a Sellers Disclosure form. This form is used to give potential buyers additional information regarding your home and property they would not know by looking on the Multiple Listing Service (MLS) or the printout given to them by their buyer’s agent.
As the seller, you need to fill out the Sellers Disclosure Form to the best of your ability. You may not know the answers to all of the questions but Watts advises you to do the best you can.
You do not want to commit “Nondisclosure” or “Silent Fraud” on this form or at any time throughout the process of selling your home. The following are ways you can commit fraud:
• Your home has a defect and you purposely do not disclose the defect
• You disclose the defect but you understate the severity of it when questioned
• You become aware of a defect during the selling process and you do not correct a statement made previously to a buyer or you do not make a change to the Sellers Disclosure Form
You may think that if you state that the property is sold in “as is condition” this eliminates the risk of fraud. Unfortunately, you would be wrong. Watts says even if you are selling your property in “as is condition” and you are aware of defects you still must disclose those defects even if you have no intention of correcting those defects.