If you are considering moving you probably know that you need to get pre-qualified or pre-approved by a lender, so what’s the difference?

PreApprovalYou can get online right now, punch in some rough income estimates some bills and debt values and a bank can get you pre-qualified right now, but if you’re thinking that’s too easy, you’re right. What is at the bottom of that ‘Congratulations! You’re Pre-Qualified’ page is a lot of fine print that basically says the bank hasn’t run credit, received any documentation from you or done any real work to see if you actually qualify. They will then direct you to contact them to apply.

Pre-Qualification is based solely on what you tell the lender, whether it’s accurate or not, and if it can be documented properly doesn’t matter.

This is the big difference in pre-qualified and pre-approved.

With a pre-approval, you have to prove it to the lender.

2 main dangers of going strictly off a pre-qualification:

  1. Just getting pre-qualified may create the illusion that you can afford more home than you actually can. The worst thing you can do is start shopping houses that are more expensive than you can afford and half to reduce your price later.
  2. Pre-Qualification doesn’t mean you will get Pre-Approved. There is more to it than just credit score, income and debt and you may start looking at moving only to find out you can’t get a loan.

What should your lender do to Pre-Approve you properly?

For starters, you should be actually talking with a lender, not just applying online. This will give the lender the opportunity to ask you questions to avoid issues down the road. They know what needs to be documented and what can disqualify you and if they have all this information at the start, they can pre-qualify you and know that you won’t have issue when you apply because they already have the answers to the questions they need.

Three things you lender should do for a rock solid pre-approval:

  1. Run you credit. There is more to qualifying than just your credit score.
  2. Collect paystubs, bank statements, and other documentation of income and debt.
  3. Run your loan through Desktop Underwriting.

This will not only get a solid pre-approval, but will avoid issues later on and make full application much easier.

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