Some people confuse pre-qualification with pre-approval for mortgage. Furthermore, they assume that getting pre-qualified is better than pre-approval. In fact, the opposite is the case when it comes to obtaining a mortgage. In order to understand this, let’s first understand the difference between pre-qualified and pre-approval when it comes to mortgages.
Difference between Pre-qualification & Pre-approval
A pre-qualification is basically a verbal conversation with your lender; the conversation revolves around overview and summary of your credit history. Whereas, pre-approval is different. It is a lengthy process whereby the lender evaluates your total income, assets, and required documentation.
Getting pre-approved is more important than being pre-qualified as it ensures that you will obtain the loan. Pre-approvals are concerned with various aspects ranging from the amount of money you can afford, to the interest rate you’ll pay on the loan. There are a number of advantages of getting pre-approved such as:
- Pre-approval is helpful in defining the lender’s limits for the loan.
- It helps you narrow down your home hunting by offering you a particular cost range.
- The majority of sellers prefer pre-approved offer over others.
Now that you know the importance of pre-approval, you might be wondering how to get pre-approved for a mortgage? Don’t worry. The following guidelines will help you increases your chances of obtaining pre-approval for a mortgage.
3 Guidelines to get pre-approved for mortgage
- Stay at Your Job
In order to get pre-approved for mortgage, it’s important to stick with your employment. Job switching can affect your income status, which might then lead to a delay in mortgaging progress. Taking a less income job or quitting a job to become self-employed can put you in trouble as lenders will have to re-evaluate and decide whether you deserve the loan or not.
- Pay Down Debt & Avoid New Debt
It’s not necessary that your credit card balance reduces to zero to get a mortgage loan. Yet, the less you are indebted to your creditors, the better.
Lenders weigh up your debt-to-income ratio before approving the mortgage. The amount in arrears will determine whether you’ll get a loan or not. Less debt increases the likelihood of obtaining a loan.
- Know What You Can Afford
Do not let your lenders interfere in your expenses. In other words, they’re not supposed to tell you when and how you should spend such as; how much you spend on daycare, insurance, groceries, or fuel. You should know what you can afford with your current lifestyle, and keep your expenses confidential.
On a final note, the pre-approval procedure is quite easy. You just have to get in touch with your mortgage lender, hand in your economic and personal data, and wait for an answer. The lender will give you a pre-approval letter for your records, and as soon as a seller accepts your proposal; you’ll get your fund. Good luck!