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Preapproved or Prequalified: What's the Difference?
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Confusing prequalification with preapproval can mean disappointment for both a home seller and a buyer. Real estate experts say it's smart to urge buyers to become preapproved by their lender – not just prequalified.
For buyers to obtain a bona fide preapproval, they must submit a loan application with the necessary documentation and fee. After the lender verifies and analyzes the application, it will notify the applicant of how much money he can afford to borrow. Armed with that information, the buyer can confidently go home shopping.
Prequalifications are simply an estimate of what a buyer can afford. A buyer who assumes that this estimate is accurate and chooses a home based on the information may, in fact, be denied a loan when he actually applies. That results in a situation that wastes his time and can put a seller in an a bad position if they've already turned away a qualified buyer. And, of course, it wastes the real estate practitioner's time as well.
Source: Kiplinger’s Personal Finance Magazine (08/01/07)
And remember . . . Don't spend a PENNY 'til you call JENNY!
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Pre-Qualifying and Pre-Approval
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Pre-qualification is an informal way to see how much you may be able to borrow. You can be 'pre-qualified' over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house.
Pre-approval is a lender's actual commitment to lend to you. It involves assembling financial records mentioned below (without the property description and sales contract) and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.
Pre-approval is vital.
Should there be multiple offers on the home you want, your contract will be viewed more favorably if it is received with the Pre-Approval letter from your lender.
Bring the following information with you when you meet with the loan officer for Pre-Approval or loan application:
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Pay stubs for the past 2-3 months
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W-2 forms for the past 2 years
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Information on long-term debts
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Recent bank statements
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Tax returns for the past 2 years
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Proof of any other income
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Address and description of the property you wish to buy (if known)
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Sales contract (if applicable)
During the application process, the lender will order a report on your credit history and a professional appraisal of the property you want to purchase. The application process typically takes between 1-6 weeks.
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There are costs associated with the loan origination process. When you turn in your application, you'll be required to pay a loan application fee to cover the costs of underwriting the loan. This fee pays for the home appraisal, a copy of your credit report, and any additional charges that may be necessary. The application fee is generally non-refundable.
A Good Faith Estimate lists all fees paid before closing, all closing costs, and any escrow costs you will encounter when purchasing a home. The lender must supply it within three days of your application so that you can make accurate judgments when shopping for a loan.
ESPA stands for Real Estate Settlement Procedures Act. It requires lenders to disclose information to potential customers throughout the mortgage process to protect borrowers from abuses by lending institutions. RESPA mandates that lenders fully inform borrowers about all closing costs, lender servicing and escrow account practices, and business relationships between closing service providers and other parties to the transaction.
For more information on RESPA, or call 1-800-217-6970 for a local counseling referral.
To ensure you won't fall victim to loan fraud, be sure to follow all of these steps as you apply for a loan:
v Be sure to read and understand everything before you sign.
v Refuse to sign any blank documents.
v Do not buy property for someone else.
v Do not overstate your income.
v Do not overstate how long you have been employed.
v Do not overstate your assets.
v Accurately report your debts.
v Do not change your income tax returns for any reason.
v Tell the whole truth about gifts.
v Do not list fake co-borrowers on your loan application.
v Be truthful about your credit problems, past and present.
v Be honest about your intention to occupy the house.
v Do not provide false supporting documents.
Thank you for visiting www.HendersonvilleTennesseeRealEstate.com.
Email Jenny for guidance through all aspects of the home ownership process.
And remember . . . Don’t spend a PENNY ‘til you call JENNY!
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Interest Rates for Hendersonville Real Estate
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The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. According to the FHA, monthly mortgage payments should be no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses, should total no more than 41% of income. The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.
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