Get Your Financing Ready

We just can't tell you how many times we have had a good qualified buyer, who makes a very good offer, get their offer rejected because they had not yet taken the time to arrange their financing. This is a critical step to preparation for engaging in a home search, even though it has no bearing on the search itself. It enables you to act quickly once you find an opportunity and want to move forward.

Pre-qualify vs. Pre-approval.

Pre-qualifying is the process of engaging a loan officer and discussing your qualifications. Some will run credit reports to verify your credit history. When this process is complete, the loan officer will provide you with a letter stating that you are prequalified, and the amount you are prequalified for.

Pre-approval starts with pre-qualifying, then proceeds to the next step. You will submit a formal loan application stating your assets and liabilities (what you own, and what you owe) along with proof of any income of cash assets.

This application will be forwarded to the loan company's underwriting staff, who are responsible for approving loans. They will go through all the normal processes of approving the loan application, except for those parts that relate to approving the specific home (appraisals and risk assessments on the home itself).

When this process is complete, they will provide you with a letter stating that you are pre-approved, and that they are prepared to lend you the amount you are pre-approved for. This is a loan approval in process, not a completed loan approval. To complete it you must provide an acceptable home that meets with the loan companies expectations and risk assessments.

Understand the difference:

Loan officers who take your application and process pre-qualifications are not authorized to approve loans. They do not go through the process of verifying your application or assessing the loan company's risk. A Pre-qualification letter is based on the information you provide the loan officer only, and perhaps some rudimentary verification (credit reports, employment verification, etc...). It is the opinion of the loan officer that you should be able to obtain financing.

Pre-approvals on the other hand, are verification of a decision made by a lender's underwriters to loan you money, subject to your completion of their process by providing an acceptable home. In other words, your ability to obtain financing is no longer in question, providing you submit a home to them they can approve the financing for.

Why Does this Matter?

Read our next section on preparing offers...