Strategic Advice gives you an edge in negotiations
Getting fully credit approved for a mortgage is the optimal way to buy a home, and can actually give you a strategic edge in negotiating.
Many buyers confuse pre-qualification with pre-approval and use the terms interchangeably, but they are far from the same. For a listing agent and seller, it makes a big difference which type of loan letter a buyer submits with their offer.
A home loan is more involved than getting a credit card or car loan, because mortgages are highly regulated and require paperwork, documentation, and credit analysis.
3 Obvious Reasons To Get Pre-Qualified for a Loan
- Verify no credit issues or credit report mistakes
- Confirm what price home you can qualify to buy
- Gather documents needed for a loan application
Additionally, it makes sense to do this step to avoid wasting everyone’s time – your time, the sellers’ time who have to prepare for showings, and your agent’s time showing you homes you may not qualify to buy.
Beyond these obvious reasons, at Path & Post, we recommend getting fully credit approved before looking at homes. Completing this step will ensure you don’t miss a deadline for a home in a multiple offer situation, and it will give you an edge in negotiations so the seller values your offer as more serious.
3 levels of Pre-Qualification
- GOOD: Basic Pre-Qualification
- BETTER: Actual Pre-Approval
- BEST: Full Credit Approval
More detail on starting the loan process…
GOOD: Pre-Qualified
Getting pre-qualified involves supplying a bank or lender with your overall financial picture, including your debt, income, and assets. The lender reviews everything and gives you an estimate of how much you can expect to borrow. Pre-qualification can be done over the phone or online, and there’s usually no cost involved. It’s quick, usually taking just 24 hours to get a pre-qualification letter.
Keep in mind that loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home. It’s based solely on the information you hand over to the lender, so it is only as good as the information you provide.
BETTER: Preapproved
Getting preapproved is the next step, and it’s more involved but ensures you are on the right path to buying.
You complete a mortgage application online or in person. You supply the lender with the necessary documentation to review your financial background and credit rating. The lender can preapprove you for a mortgage up to a specified amount and give you a preapproval letter to submit with an offer.
You’ll also have a better idea of the interest rate you’ll be charged on the loan at this point. Interest rates are based on your credit worthiness, property used as security for the loan, type of loan, amount being borrowed, and many other factors.
Some lenders will go ahead and send your loan through the Fannie Mae automated underwriting system which means that as long as the lender has the accurate information to match up to what was input then the underwriter will approve the loan.
The pre-approval process can take longer depending on the type of income, W-2 or 1099. Self-employed borrowers will have a 2-year analysis of their full business and personal tax returns done by the lender.
BEST: Credit Approved
This is when your lender gets all of the documents that your loan will require and submits your file to underwriting, which is the department that makes the final loan decision. This can be done prior to finding a home and going under contract. The underwriter will be reviewing your income, assets and credit report and give you a thumbs up on being fully credit approved, while you search for the right home.
Once you go under contract, the lender will send out final loan disclosure documents for you to sign and order an appraisal. Once appraisal is completed, the lender will submit the file back to underwriting to get a final approval.
