Considering buying a new home in the near or long term future? If you’ll be using mortgage financing to purchase your new home, the first place to start will be talking to a loan officer to understand how much you qualify for, and what loan program will be your best option.
There’s a lot of confusion about the different terms for getting “prequalified”. Here we try to explain the differences, and offer up our best advice on prepping to get a mortgage loan.
The Process Starts With Prequalification
The first step in obtaining mortgage financing is to speak with a mortgage professional to get prequalified. After sharing some quick information about your financial assets, income, and any debts, your advisor will share a range of financing options and amounts that you may qualify for. Prequalification is typically done free of charge and either in person or over the phone.
Note that your mortgage lender will not be doing any digging in the prequalification stage. There’s no credit check and no hard look at your assets. Don’t get too excited if you are prequalified for a large mortgage as you will still need to be approved.
The prequalification is a quick tool to “get an idea” of what you’ll be looking for, but in many markets where there’s a lot of competition from other buyers, being simply “prequalified” puts you at a huge disadvantage when competing with preapproved, or even preunderwritten, buyers. For this reason, if you would even consider purchasing a new home if you found the “right one”, we advise skipping prequalification altogether and going ahead with a full preapproval. This prevents surprises, and ensures that if you do put in an offer on a new home, it will be your best offer.
Once You Are Preapproved, You Are All Set
Preapproval, on the other hand, is a firm commitment to access to a certain level of mortgage financing. Your mortgage lender will require a variety of information to get an idea of your financial situation, your current and future employment, your level of risk and more. Once they have a good idea of how much mortgage you can afford, you’ll receive a preapproval letter that can be submitted to a seller with your offer This letter outlines how much the lender is willing to offer to you as well as other vital information like your mortgage loan interest rate and product type. While there’s a bit more work in a preapproval VS a prequalification, the benefits of having a full preapproval far outweigh the additional time it takes.
Preunderwriting takes your preapproval to the next level – with preunderwriting, your loan officer will gather all of your documents that an underwriter would want to see, and create a complete loan file for you. The file is submitted to an underwriter with the only missing information being property info – home owners insurance, an appraisal, and title work. An underwriter can then issue a full approval with a “TBD” home address, so that when you find the right home, the mortgage process is simply a matter of ensuring the property is satisfactory to be collateral for a loan. In essence, a buyer approved with preunderwriting is in about the same position as a cash buyer, making their offer to a seller very appealing.
Preunderwriting takes any seller concerns and guesswork out of the equation, and especially in competitive markets, it allows buyers to put their best foot forward, waive financing contingencies, and be taken very seriously by sellers.
Have you found the home of your dreams? Our team of mortgage professionals are ready to help you finance it. Contact us today and we will be happy to assist you in preparing for your purchase and making sure that you shine as the best buyer you can be.