Pre-Approvals vs Pre-Qualifications vs Pre-Commitments? When purchasing a home, which is better? The standard answer seems to be: pre-commitments. But, I think this is the wrong question to ask and definitely the wrong answer. In this edition of Mortgage Mythbusting, I’ll tell you the better question to ask your lender.
First, let’s define the differences, so we are all on the same page:
A buyer fills out a mortgage application and the lender looks at their credit report. In addition, the buyer submits some documentation (tax returns, bank statements, pay stubs, etc). Buyers receive a letter stating the mortgage amount they qualify for, if they meet the lender’s requirements.
A buyer fills out an application and the lender looks at their credit report. Also, the buyer submits all the documentation requested. Then, the lender submits this information to their underwriter for review. Buyers receive a letter stating the mortgage amount they qualify for based on an underwriter’s review, if they meet the lender’s requirements.
Now that you know the differences, you probably have several questions. Here are a few questions I frequently get from home buyers:
Why would anyone go through the hoops of a pre-approval or pre-commitment?
An underwriter reviews a pre commitment, making it a much stronger offer. In a competitive market, this can help your offer stand out from the rest. Thanks to the due diligence done in advance, financial surprises are far less likely to arise. Surprises are great for birthdays– terrible for mortgages!
As a seller, should you accept an offer from someone who is just pre-qualified?
Maybe. Obviously this depends on the offer terms, competing offers and your personal preferences. Recognizing that issues may arise before settlement means you enter into the contract fully aware of the situation.
What if you pop into a open house and fall in love? Is there any chance of your offer being accepted, if you don’t have a pre-commitment?
Possibly! It depends entirely on market conditions. The odds are not in your favor in a competitive market, but it could happen. Submitting documentation ahead of time strengthens your offer.
Do pre-commitments take tons more time?
Usually it does not require lots of extra time, depending on the documentation we need from you. The faster you submit all the requested information, the faster we can give you answers.
What question should you ask your lender? This one: Given my personal goals and market conditions, do you recommend a pre-qualification, pre-approval or pre-commitment?
**Any opinions expressed are the opinions of the author and may not be the opinion of HomeBridge Financial Services, Inc.
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