Most lenders prefer the home-buyers to have a pre-approval letter. This makes the buyer more favourable for home loan process.
The pre-qualification and pre-approval might sound similar in the initial stage but are not. In simple terms, pre-qualification is the prior stage of the home loan process. These are two essential steps in the process of the mortgage/loan application process. The pre-qualification requires less process and paperwork than the pre-approval process. The pre-qualification is an informal document that states that the home buyer is eligible to get the loans. The pre-qualification can be the decisive document for estimating the home loan.
Pre-qualification is the prior step to the pre-approval. Mostly the pre-qualification is completed through verbal conversation, while the pre-approval requires hard inquiry and credit reports.
The bank executive will ask to give verbally give his financial details, current financial status, annual income, DTI ratio, etc. after the verification done by the bank executives, they offer a loan that suits you best. Pre-qualification can be useful as an estimate of a home buyer’s budget. But the pre-approval is much more important.
In case of pre-approval, the bank will thoroughly verification of the customer’s credit score, financial status, annual income, DTI ratio, etc. The bank executives go through a background check of a customer’s detail before approving.
It is important to have an estimated budget for the house and the house you can purchase. Going through the process of pre-qualification and pre-approval will help you to determine the budget of the house, based on your financial situation and history. Having both or one of these documents will certainly give you the upper hand *over the other home buyers and the chances of the approval of the loan also increase.
Pre-qualification is the first step towards the loan application process. Pre-approval requires a thorough investigation of your financial history, credit score, and other details you provide to the lender, while the pre-qualification requires verbal communication between the home buyer and the bank executive. A pre-qualification is considered merely a formal document that helps estimate the budget.
Getting pre-approval gives you a power of negotiation of terms and condition as the finances of the home buyer is lined-up. The pre-approval allows for the faster closure once all the conditions are met.
Pre-approval and pre-qualification documents certainly are the essential documents for the home loan application process, but it does not guarantee you the home loan. So, it is imperative to analyse your budget and timing of buying the house, so that you can decide based on that which option to choose – pre-qualification or pre-approval.
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