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A mortgage pre-qualification is the least valuable option. Although it shows that you have spoken with a loan officer, it's not binding in any way and could leave out information that would affect an eventual loan approval. This is because many pre-qualifications are issued without a loan officer reviewing the person’s credit report, which is a key determinant in the type of loans you could receive, if any.
The pre-qualification process is so informal that it can even be done over the phone, with the borrower briefly outlining his or her income, assets and debt. Therefore, the loan officer is not actually evaluating any documentation and can only make an assessment based on the limited information he or she is given.
Builders will likely not be impressed with pre-qualified buyers, especially since there are more official approaches.
A mortgage pre-approval holds more weight than a pre-qualification because the lender actually reviews the borrower’s financials to determine if he or she is even able to pay back a loan. Such information usually required includes:
Not only does getting pre-approved let a seller know you are a legally qualified buyer, worthy of consideration and negotiation, but it also benefits you in other ways. For example, it gives you an idea of how much money you can afford to spend on your next home, narrowing down the areas in which you should look in. Additionally, it doesn't cost any money or obligate the buyer in any way.
However, keep in mind that you shouldn’t wait until you find the home of your dreams to apply for pre-approval, as it could take some time. Instead, this should be one of the first steps you take as you begin the home-buying process, ensuring that you will be ready to make an offer when the time comes.
A commitment letter from a lender is prepared by an underwriter after thoroughly looking over the borrower’s pre-approval application.
This letter is official proof that you’re going to get a loan. It details the terms of this loan for both the lender the borrower, including the type of loan being granted to the borrower (i.e., conventional, FHA, etc.) and the amount of funds he or she is set to receive. The requirement guidelines are also typically discussed, as it breaks down how much money the borrower is expected to pay the lender each month, including interest, and for how long.
Out of all three options, getting a commitment lender is the most beneficial for a home buyer, as it proves that he or she is ready close on the property as soon as the seller accepts the offer.
In closing, if you want to win the primary consideration of a house seller, take the time to at least get pre-approved. You don't want to take the chance of your dream home going to someone else who had this valuable foresight.