One of the greatest misconceptions people have regarding the home buying process is the difference between a PreQualification and a PreApproval. Many people use the two terms interchangeably, however the meaning of the words are completely different and produce completely different results.
In the real estate industry, a PreQualification is the process in which a mortgage lender asks the prospective homebuyer basic qualifying questions to see if he or she meets minimum guidelines to qualify for a mortgage loan. If you are prequalified based upon your answers, the loan officer may issue a PreQualification letter. This letter merely indicates you may be able to qualify for a mortgage. However, at this point, your answers have not been verified. These questions are centered upon:
- Knowledge of Possible Credit Score
- Length on Current Job/Industry
- Current Salary or Hourly Wage
- Current Address
- Previous Homeownership
- Previous Bankruptcies or Foreclosures
On the other hand, the PreApproval is a more thorough process which involves verification of the requirements needed for a mortgage loan. In order to obtain a PreApproval, the loan officer will closely verify each requirement—as it is essential for you to satisfy all of the requirements in order to obtain a PreApproval letter. The processes include:
- A Thorough Check of Your Credit Scores from all 3 Major Credit Bureaus
- Two Months Worth of Pay-stubs or Two Years of Your Tax Returns/W’2s to Verify Income for the Self Employed
- Two Months Bank Statements
- Comparison of your Debt-to-Income Ratios
Without a doubt, the PreApproval is the most accurate and thus, first step in order to begin the home buying process. Simply put: A person can’t buy a home without cash or the current ability to obtain a mortgage loan. That’s why here at Jackson Erwin Realty, we work diligently with our clients to ensure they complete the first critical step towards homeownership: obtain a PreApproval from a reputable mortgage lender. It is the first step all prospective homebuyers should take towards homeownership. If you are looking to purchase a home or you want more information on how you can become a homeowner here in Charlotte, North Carolina: contact Jaclyn today!