PreQUALIFIED versus PreAPPROVED… do you know the difference?
A prequalification is a quick estimate of how much home one can afford. To get prequalified a mortgage lender would take a little bit of information and provide a quick estimate of how much you can afford. They will provide a letter telling you the magic number and saying it doesn’t constitute loan approval and that a lot of additional documentation is necessary for formal approval. In the Arkansas state contract it says a buyer has 5 business days from the date the seller accepts their offer to make a complete application for a new loan.
PreAPPROVAL is a thorough investigation of your income, assets, credit history, rental history, and debts. A lender will verify you’re employed, that the facts haven’t been falsified, and that a person isn’t up to their eye balls in debt.
When do you need one of these letters? Before you even start looking at houses. Why? Because you want to make sure you’re looking at homes you can afford and because when you make an offer you want to show the seller that you’re good for the money that you’re offering for their home. If you wait until you want to make an offer to ask for the letter, you could miss out! It takes time and the seller could receive and accept other offers while we’re waiting for our letter.
Which would you prefer as a seller when receiving multiple offers? I’m going to say it’s likely a PreAPPROVAL but it’s difficult to get lenders to do this up front and it’s not often we receive the PreAPPROVAL with an offer. When I have a buyer I push for the PreAPPROVAL so we can have a leg up in negotiations. When I have a seller I ask for PreAPPROVAL with offers.
Are you ready to look for property in Northwest Arkansas? Contact me and let’s get started!