Want to ensure a smooth home buying process? That is what can happen when you have a prequalification and preapproval letter. How? That’s what we discuss.
Looking for a property without estimating the loan amount you are eligible for is like playing blind darts and expecting to hit the bullseye. That can be hard to predict and cause heartbreaks at the end of the home buying process.
How? Suppose you have made an effort to find a home you like. But when you go to a lender for a loan, you realize your creditworthiness is not enough to secure that amount.
What could you have done differently? It would have helped if you had assessed your creditworthiness and gotten an estimated loan amount you will receive. That is exactly what you have when you are mortgage-prequalified and mortgage preapproved.
At the end of these processes, the prequalification letter and preapproval letter will help you go through a smooth home buying experience.
Yes, you will have questions about prequalification, preapproval, and how to get the letters. That is all we are about to discuss.
Being prequalified for a mortgage is among the first steps toward reducing the efforts needed to buy a home. This is the initial investigation by the lender before you actually go to the lender to secure a loan. You will know if you meet the basic criteria for a mortgage loan.
Mortgage prequalification starts with lenders wanting to know about the general financial parameters. Some of the information that lenders would want during this phase may include:
Personal Information
This might be asking for your full name or social security number.
Income
What is your monthly earnings?
Debt
What is the list of monthly debts that you need to pay off?
Credit History
Do you have a history of financial fraud, like missed payments or home foreclosures?
Employment History
What is your current employment status? Are employed by someone or self-employed?
There is No Document Verification
Are you new to real estate investments? If so, you will be ready to verify your documents. But that is not needed yet. To complete this process and get the prequalification letter, the lender believes whatever information you provide.
Requires Less Time
Not having to verify documents will significantly reduce the time needed to receive the prequalification letter. You can even get the prequalification letter within 24 hours if the lender is efficient enough.
But the downside of this fast process is that the loan amount for which you are eligible may not be too accurate. That might not give you a clearer picture of your home-buying budget. But on the bright side. You will understand the loan-obtaining process.
No Impact on Credit Score
Let’s talk about credit scores. We have mentioned that the lender will want to know about your credit history from your credit report. Since the lenders don’t evaluate the report for some potential issues, it is a soft inquiry, and your credit score remains unaffected.
Having a prequalification letter in your hand might not impress the lender. Why? Because they know you haven’t had your details verified yet. That is the reason most lenders go for the next step, mortgage preapproval.
This is where the lenders look for proof to verify your claims about your financial situation. So, if you are eying a preapproval letter, here’s a list of a few documents that you may need.
Driving License or Passport
You need a valid document to prove your identity.
W-2 Forms
To know how much you earn from an employer and what is the total tax you pay.
Bank Statements
Disclose the financial assets that you own in your saving and investment bank accounts.
Tax Return
Viewing your tax payment record and schedule.
Credit Report
Lenders file a hard inquiry to access your credit report and identify your credit history. They check for potential issues like having a history of foreclosures, defaults, and missed payments.
The entire preapproval process can take a long time as the lender need to verify your documents. You might have to wait for your pre-approval letter for a week or more. But all this wait pays off as a pre-approval letter tells the home seller that you are serious about buying the home.
We have mentioned the credit score not being impacted during the process of getting your prequalification letter. But since the requirement of getting a preapproval letter involves checking your credit history, your credit might temporarily drop for a couple of months.
There will be rewards waiting for you after the process of prequalification and preapproval is done, and you want to know your creditworthiness. Let’s look at some of the advantages you can unlock with these letters.
When you complete the initial process of being mortgage prequalified, you get the prequalification letter in your hand. Here are the perks you can enjoy.
Creditworthiness for a Mortgage
This shows your creditworthiness of being eligible for a mortgage. Having a prequalification letter makes it highly likely for you to receive a mortgage.
Faster Time to Process
If you can’t wait for weeks to start your buying process, you can apply for a prequalification letter and get it within 24 hours.
Better Negotiation with the Lender
Having a prequalification letter means you can impress the lender and possibly secure a loan at favorable interest rates.
Preapproval Letter
As you enter the process to receive your preapproval letter, here are the advantages you can expect.
Better Budgeting
When you have the preapproval letter, you can efficiently budget for your next property. That is because you will have a more accurate estimate of the loan amount you are eligible for. It will allow you to also budget for other expenses like down payment, closing cost, and more.
Builds Credibility
Borrowers with preapproval letters are usually given higher priority by home sellers as compared to those without it. One of the reasons is that seller knows you, the borrower, have gone through the process of document verification and want to buy the home.
Understand Your Financial Position
Receiving your preapproval letter means you have your credit checked. You would now know the credit history areas to improve and increase your financial position for a higher loan amount.
Doing so won’t be possible with just a prequalification letter, as there wouldn’t have been a credit check.
The prequalification letter and preapproval letter are your ticket to clearing your way for an easy home-buying process. After you have the preapproval letter in your hand, jump to HAR.com to find your preferred property.
You can explore residential homes, apartments, condos, and other property types. Buy the one you like and it meets your budget.
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