When you’re getting ready to buy a real estate in the Bay Area, one of the first things you’ll need to do is to determine how much of a real estate mortgage you can afford. As a first-time home buyer, the process can feel overwhelming.
Being pre-qualified by a prospective lender is not the same thing as being pre-approved. In a tight real estate market where there are multiple competing offers on a property, being pre-approved can make your offer much more attractive to the seller.
In order to get pre-qualified, you will confer with a mortgage broker (either in person, on the phone, or using an online form) to submit a loan application for review. There is often no fee for this service. The application will ask information about your income, assets, debt, credit score, employment history and education. Based on this information, a lender will give a preliminary indication of how large of a mortgage you might be able to qualify for. This stage of the process does not look at your credit score. Pre-qualifying is essentially a non-binding opinion letter. It’s a great start, but it isn’t enough.
Pre-approval is a much more extensive vetting of your financial position, and you will typically have to pay an application fee. In the pre-approval process, the lender will ask you to provide documentation to corroborate all of the information you provided on the loan application. In addition, your credit report will be run and your credit score will be factored in to the final decision about how much of a loan to approve you for, and at what rate.
When you get pre-approved, you’ll know exactly how much money will be available for your purchase. The lender will issue you a document stating that you are pre-approved to borrow up to a specific amount of money towards buying a home. Knowing how much of a loan you can get will help you and your realtor refine your search to find properties in your price range.
Providing the pre-approval letter as part of your offer to purchase a home can improve the odds that your offer will be accepted. The the seller can relax knowing that your transaction won’t fall through because you couldn’t secure financing.
Confused and have more questions? Don’t know where to start? Contact us and let us help. We’ll be happy point you in the right direction.