Home Finance. Are you pre-qualified or pre-approved for a home loan? What’s the difference?
Cash is king when it comes to finding the best home for the best price, because cash is guaranteed. But not all of us have the privilege to pay cash for a home. In fact, 9 out of 10 buyers can’t or at least choose to finance their homes. This section is for home finance. Home buyers who will be financing, but want the same or similar leverage as paying cash.
Before you jump into the arena of buying and financing a home, you need to know a couple of starting terms to get the best home for the best price. Pre-qualification letter and a pre-approval letter. Most people, especially first time home buyers, don’t know the difference. In the Tampa bay area, available home inventories are low and homes sell pretty fast. To find the perfect home and get a great deal on it, you have to move fast and have your offer backed with something that says you can qualify for the mortgage. If you enter the home buying arena with only a pre-qualification letter, it can be mentally disappointing for you if you thought you were pre-approved. Most sellers will not accept a pre-qualification letter with an offer.
#1 Before you go window shopping for a home or condo through the MLS®, Zillow®, Trulia® or FSBO for that matter, get at least, pre-qualified!
A pre-qualification letter is an estimate of how large a mortgage or loan you can afford based on your financial situation over the past two years. It is not a loan commitment or guarantee! The pre-qualification letter does not have any bargaining power and it’s not an instrument to negotiate a home purchase. A home finance pre-qualification letter will only help you narrow down your options, so you can focus on how much house you can potentially afford. To get a pre-qualification letter, most lenders will ask for proof of employment by supplying a paycheck stub and get your FICO score. What they are looking for is financial possibility.
Note: If you are serious about buying a home and you want to work with the lender you have approached, never, never fudge your information. Tell the lender everything they’ll need to know, from your current job situation to what might be found on your credit report. If you don’t, you’ll risk damaging your credibility with that lender and your shot at the mortgage and the home you are considering. There job is to get you a loan. They don’t get paid unless you succeed in getting a loan. Most lenders may run a credit check on you, for a pre-qualification letter.
So, you’ve gotten pre-qualified for purchasing your next home and you’ve done your window shopping and you have a pretty good idea of what you want. The next step is not to go find a home. Home’s sell too fast. By the time you get a pre-approval letter, the home may be sold.
#2 Get pre-approved! Before you go driving around town with a real estate agent or Realtor®, it is highly recommended to get a home finance pre-approval letter from a lender. Waiting for a bank approval can take some time. When shopping for that perfect home at a bargain, you don’t have time to start the process or you will lose the home. Note: Some lenders are offering what is known as “Lock and Shop”. This is where you’ve been pre-approved and locked in a rate. This can be very helpful because you can shop with confidence that you are pre-approved and your rate is locked in. This way, you can focus on shopping and not on what the Fed is doing.
A pre-approval means you have met with a loan officer, your credit files have been opened, reviewed and the loan officer believes you can readily qualify for a given loan amount with at least one specific mortgage program. This is a preliminary loan commitment based on your credit worthiness. A pre-approval letter does not guarantee you a loan. The home must qualify or at least appraise and the bank will usually loan up to 100% of it’s appraised value, not the asking price. This is where your buyer’s agent is a wizard and can save you a lot of time and headaches. To get a pre-approval letter, most lenders will ask for recent pay stubs or other proof of employment. Your tax returns from the previous two years, longer if you’re self-employed. And they will run a credit report from at least one of three credit reporting bureaus—Experian, TransUnion and Equifax.
Note: You can visit as many lenders as you like and get several home finance pre-approvals, but keep in mind that each one carries with it a new credit check, which will show up on future credit reports and potentially lower your credit score, unfortunately reducing your bargaining power. And, you are not obligated to work with the lender who provided your letter. Most lenders will encourage you to work with them on the mortgage, but by no means should you feel obligated to do so. A pre-approval has a time limit of 30, 60 or 90 days. If your letter runs out, they can be easily updated by providing some updated information.
Never, never, never make a major purchase on credit during your pre-approved period of time. It will damage or possibly void your pre-approval!
Need a pre-qualification or pre-approval letter?
Call me for a recommendation.
Tell them Curtis Rudolph sent you and they will give you preferential treatment!
If you are ready to buy a home within the next 60 days, you must have cash or be pre-approved. The real estate market moves very fast and the right home at the best price will slip away if you are not prepared. If you are financing a home, get pre-approved. Go to a lender of your choice or call me and I’ll send you my recommendation.
Note: Most mortgage loans today will require 5% to 25% in cash at closing. And, in nearly all home finance mortgage loans, the cash cannot be borrowed. Even the zero down, VA and USDA programs must have at least 1% earnest deposit and 100% of the difference over appraisal or you won’t close.
Are you ready to buy within 60 days? Got cash or some cash and a pre-approval letter? Need an expert buyers agent? Call me at 813.240.6054 today and Let’s get to work!
Have a little more time or just want to see what’s out there? Fill out the floating Contact Us form and I or one of my team will contact you ASAP. We’ll set up a 15 or 20 minute, face to face interview and go over what you are looking for so we can set you up in our system for an auto-search. The auto-search system will send you an email the moment a property gets into the MLS® that meets your criteria. This focused search will save you a lot of time by filtering out what you don’t want and only sending you what you do. Contact us today!
We specialize as buyer’s agents in South Tampa, SOHO, Davis Islands, Channelside, Harbor Island, Sunset Park, Westshore, Culbreath Isles, Culbreath Bayou, Hyde Park, Bayshore Boulevard, Beach Park and Plant High School district homes. Specialty zip codes 33606, 33602, 33611, 33609, 33629. We are buyer’s agents for the rest of the Tampa bay areas including: Westchase, Country Way, Citrus Park, Fawn Ridge, Carrollwood, Carrollwood Village, Old Carrollwood, Keystone, Odessa, Lutz, New Tampa, Seminole Heights, Wesley Chapel, Land O Lakes, Avila, Lake Magdalene, North Dale, North Lakes, Lake Ellen and Forrest Hills. Zip codes: 33613, 33604, 33603, 33614, 33612, 33624, 33618, 33556, 33558, 33559, 33625, 33626, 33635, 33634, 33544, 33543, 33549, 33548, 34639.