Are you are in the process of buying a home? Are you are constantly asked if you have spoken with a lender? Some real estate agents will not even work with you until you get a pre-approval from a lender. Maybe you did talk to a lender and you have a pre-qualification. Is there a difference between a pre approval and a pre qualification? Who cares? Does it really matter?
The answer is “Yes” is matters; It matters that you have taken the time to get a Pre- Approval and not just a pre qualification.
In a Pre-qualification, the lender will run your credit and ask basic questions about your income and expenses without verifying any of the answers you give.
In a Pre-Approval, the lender will require you to bring:
- Most recent two year’s income documents (W-2’s, tax returns, and 30 day paystubs)
- Most recent two months of bank statements
- Current photo ID
- The Lender will run your credit
You can see the difference immediately. The lender will be able to give you an answer on what you will qualify for and any potential conditions that may come up in the approval process. Additionally any Real Estate Agent representing a Seller will be able to show the Seller with a high degree of confidence that your pre approval is reliable; where buyers with pre qualification letters have a lower degree of reliability for obtaining financing.
Here is the exception to all of this:
Who you choose to be your lender is highly important for the following reasons:
- They need to meet the time lines for gaining approval according to the purchase agreement. Typically they need to obtain Loan approval in as little as 17 days with a maximum of 21 days. Your ability to fill out the application and provide all the paper work they need in a timely manner is a big part of this process. If you go through the pre approval process, then much of the paperwork has already been submitted to your lender, making the approval process much simpler.
- If you are a w2 employee then things will be pretty straight forward.
- If you are self employed, be ready for a wild ride. The bank will not only look at your income, but they will dig into the tax returns of your company and question the condition of your company. NOT ANY OLD LENDER is capable of working on this type of loan no matter what they promise you. You need to make sure the lender you are using has completed loans for many self employed individuals.
Lastly, your lender needs to have excellent communication habits, most problems arise when communication habits are poor. Purchases have strict time lines as mentioned above and the lender needs to keep everyone informed so the time lines can be met. If your lender delays closing, the lender could put your deposit money at risk.
If you are planing on buying, call me now (805) 432-7705 for a no obligation referral to quality lenders. If you are self employed and you prefer to use your bank, I know people in most banks that know how to deal with self employed and can put you in touch with those reps in your bank. It’s importatn you are connected with the right people.