So you’re getting ready to buy a house, exciting! What do you need to do to get ready to enter the market if you need a loan? You’ll need to talk to a lender to determine if you are creditworthy for a loan first. With that, you’ll have to consider whether to get pre-qualified or pre-approved. I’ll briefly explain the difference and give you some pointers on which one is preferable.
To start, a pre-qualification is simple and only requires a phone call or can even be done online at various lenders’ websites. You simply offer basic information on your income and other financial variables and you will be notified as to how much you will likely be approved for if the lender were to verify all of the information you provided. There is no application to fill out and thus no application fee but also there is no guarantee that the lender will give you a loan. It is merely an estimate of what you might be approved for. This option doesn’t give you a whole lot of confidence that you are eligible for a loan. Consequently, a seller may have the same lack of confidence when they receive your offer on their property. However, it can be useful if you are not looking to buy a home soon but at least want to know a ballpark figure of what you might qualify for so you can plan ahead. Ultimately though, when you are ready to get serious about buying a home you will want to get pre-approved.
A pre-approval, then, requires that a mortgage application be filled out. The lender or bank will need documents that confirm your income and financial history. They will do a thorough investigation as to your creditworthiness. In the end, you will get a pre-approval letter that indicates if the lender approves you for a loan and for how much. Essentially, the lender is saying that they will write you a loan today for the amount determined. This gives great confidence to sellers when they receive your offer with this pre-approval letter. It lets them know that you can make good on your offer. This can give you an advantage over other offers when the seller is reviewing them.
Clearly the best option is to get pre-approved. Especially in a market like Denver where homes often go under contract within the first day, you have to be ready to write an offer immediately! If you are pre-approved, you won’t miss out on any opportunities.
Want to get pre-approved? Please let me know and I can give you the names of a couple of good lenders in this area.