and Mortgage Preapproval
What’s all the fuss about?
There are two important terms to understand when it comes to financing a home - mortgage prequalification and mortgage preapproval. Here at Freestone, we want to make it easy for you to understand these confusing terms.
It’s common for people to think they have a mortgage preapproval, when they’re only prequalified. Buying a home can be stressful enough without all the terminology thrown at you. But knowing these terms could be the difference between getting your dream house, and walking away empty handed.
What does it mean to be prequalified
for a mortgage?
Mortgage prequalification is usually the first step you take when pondering with the plan to buy a house. Initially, you know very little about how much of a mortgage you can afford, so you’ll have to contact a mortgage broker and ask about getting prequalified. This isn’t a concrete commitment from you, it’s just ‘testing the water’ to get an estimate of your borrowing power.
Life in the digital age has made things easier. You can now get prequalified and assess your options online. By using one of the many mortgage broker websites, you take a quick survey and instantly find out what you qualify for in a mortgage. After you answer a list of questions regarding your financial situation, an algorithm calculates what financing you could likely receive.
You will answer questions such as:
Questions will vary among mortgage prequalification surveys. But, no documents are submitted, no contracts are written up, and you will not perform a credit check. At the end of the prequalification survey, you will receive a ballpark figure of what kind of loan you could get. And just like that, you are prequalified for a mortgage.
Remember there are No commitments! No promises! No finalized figures from you or the mortgage broker! Just hopes and dreams of what you could get.
What it means to have a mortgage preapproval?
Mortgage preapproval is the more important step towards buying your dream home. To become preapproved, the mortgage broker will analyze your ability to meet the financial obligations of buying a home. Like the prequalification process, you will be asked questions on your financial status.
But now you will be asked to provide the documentation to back it up. Your mortgage broker will check your credit history and verify your answers.
Once the preapproval work is completed, you will be given the amount the lender is willing to give you. The preapproval amount is not just hopes and dreams; it’s a commitment from a lender for a specific amount. So preapproved is a huge difference from prequalified.
Keep in mind, the preapproval is a firm commitment, but it’s not a guarantee. There are some contingencies (another word to watch for in real estate). The money lenders will still want to make sure your dream home appraises for the purchase price, and they will also check for legal issues hindering the property’s title.
Why being preapproved can be the difference between winning and losing your dream house?
The easiest way to understand the importance of preapproval is to put yourself in the shoes of the seller. Who is the better choice for a seller to go into a contract with? A buyer that has gotten an estimate of what they qualify for (hopes and dreams)? Or a buyer with a letter of approval for a specific amount of financing from a specific lender (firm commitment)? It’s easy; let someone else gamble with a prequalified buyer.
Many sellers will not even accept offers from buyers that are not preapproved.
Sellers need to be cautious as it’s common for prequalified buyers to fail to get a mortgage. The deal is then cancelled (unless the buyer has a rich uncle), and the devastated seller who thought the home was sold has to go back to the housing market to sell again. Currently it takes around 45 days to close on a mortgage financed home. So a couple of failed contracts could cost a lot of time and money.
For this reason, many sellers will not even accept offers from buyers that are not preapproved. Some won’t even let you tour their home. By not getting preapproved for a mortgage, you may lose out on getting your dream home.
Be the buyer a seller wants!
So be the buyer a seller dreams about. Get a mortgage-preapproval letter from your financial institution and give confidence to your buying abilities when the negotiations begin. Do the work upfront and you won’t regret it.
Get your mortgage preapproval letter and attach it to your Freestone profile.
Make it easy to show sellers you’re a serious buyer by attaching your mortgage preapproval letter to your Freestone profile. Whether the sellers are FSBO, Broker Assisted, or have an agent doing a Full-Service sale package, they will certainly take notice of your mortgage preapproval status.
And of course if you found a special property you’re interested in purchasing, we would love to help. So contact us, and let's talk.