Pre-qualification and Pre-approval.
When applying for a loan, it’s important to know the differences between the the various loan stages. In any real estate transaction, knowledge is power.
Pre-qualification and pre-approval
Which is not obligatory, is a simple way to get an idea of where you stand regarding financing. You will provide basic financial info about income, debts, monthly liabilities, and so on. This will help give you an idea of what you can possible get pre-approved for.
would be the first step in your home buying process. You want to get a “pre-approval” letter for a certain amount so you are able to know what price range of homes you will be able to look at. Sellers will also want a verification of your ability to get funds before entering into an agreement.
To get pre-approved, you will have to provide your lender with identification (drivers license), required documentation (your most recent bank statements, most recent W-2, Proof of IRAs or retirement accounts, ditto for any stocks or mutual funds you own, most recent pay stub) and list of assets. The lender will pull your credit report. In this step, the lending institution gathers all the information it requires to offer you a loan and will run you through their system to determine what financing—if any—they can offer you.
Once that is complete and the bank approves you, they will provide you with a documentation of the terms of your loan (i.e. interest rate, loan type, your closing costs,etc . This process is known as a GFE or “good faith estimate.”
It’s recommend that you complete this process with at least two or more lenders so you can compare offers. This could also increase the changes of a lower interest rate (lowering closing cost) as lenders compete to get your business.
If this is done in quick succession credit-scoring will know this as the loan-shopping process and you will not be reprimanded.
Once you have the house you want in mind appraised to make sure the price of that home does not exceed market value, this is when you begin with the commitment of the loan, which will This protect the lender in the circumstance that you default, or failing to meet the legal obligations (or conditions) of a loan. They will also make sure you have insure this home for replacement value and that the property has a clear title.