You are looking at buying your first home and you want to find out how much home you can afford. This should be one of your first steps in the process because it’s important to have a good idea of how much house you can afford. You don’t go out to eat at Red Lobster when you can only afford McDonald’s. By the same token you don’t want to fall in love with a home that is beyond your price range.
So what is the difference between being pre-qualified and pre-approved? Being pre-qualified for a loan means that you have visited with a lender and discussed some your financial history. You’ve shared information about your income, assets and expenses. This gives you and the lender a ballpark idea of what you may be able to afford for a mortgage.
Pre-qualification can be a fairly quick process. It can be done online, over the phone, or in person. It typically does not cost anything (other than time) to get prequalified. But it does not include the same level of scrutiny as a preapproval. Your credit report will not be analyzed. In a nutshell, pre-qualification does not guarantee pre-approval.
For instance if you forgot to mention that you no longer work the job that provided your income for last year or if you forgot to mention your adverse credit history, those items may change your ability to qualify for a loan or may at least affect the amount of loan that you would qualified to get.
Preapproved gets you a closer to the key ring for your new dream home. It means that your credit has been scrutinized and what you have reported has been verified. It means that a seller will feel more comfortable with your offer on their home because there are less unknowns. If you are prequalified and have put in an offer based on a prequalification, you want to get preapproved as soon as possible to insure the process goes smoothly.
Why is it preapproved and not just “approved’? Because there are a few more steps to reach the final destination. There is the appraisal of the home, the title search, and a final credit check to name a few. Though not common, it’s possible that last minute problems can creep up and throw things out of whack. For example, buying a new car or an assortment of furniture and appliances in in the weeks prior to closing on your home can negatively impact your credit score and change how your lender views the risk your loan presents. If the home appraises for less than the loan amount that can present a problem.
So dive into the process. Get prequalified before you seriously shop for a home and then get preapproved when you are seriously home shopping. It will remove some of the variables from the process. If you are looking for a Rapid City lender or a Rapid City loan officer, give me a call and I will gladly direct you to a professional who will help you with that part of the home buying process.