It can be very confusing when you intend to buy a house by applying for a home loan. Moreover, the process can take a lot of time, so it’s better to prepare well in advance. What’s the difference between home loan pre approval vs approved? To know more about this topic, follow the explanation below.
The Difference of Home Loan Pre Approval vs Approved
Having a home loan pre-approval can benefit you by the time you find your dream house. It will speed up the process of buying a home.
Also, there’s a higher chance the seller will prioritize your offer first more than others who don’t have a pre-approval letter. Some key differences between home loan pre approval vs approved are:
1. Home Loan Pre Approval
Home loan pre-approval is the overall review of your unverified financial status. This review is to determine whether or not you are qualified for a loan up to a certain amount. The lenders’ means of saying that they are willing to work with you is through home loan pre-approval.
When you apply for pre-approval, your chosen lender will check your credit and financial history to ensure your ability to pay the loan. After the application is accepted, the lender will tell you the limit of the money you can borrow.
If you are willing to venture more, you can seek pre-approval from multiple lenders by picking the most beneficial deal.
2. Home Loan Approved
Meanwhile, approval is the process of securing a particular loan on a specific property for a definitive amount of time. When your home loan gets approved, this process takes after picking your dream home and submitting it to the bank for consideration.
When the lenders feel satisfied, they decide to finalize your loan specific to that property. Most of the time, the lenders’ pre-approved letter means that the final process will progress much faster because all the necessary documents have been submitted and scrutinized.
Requirements for Pre-Approval
Nowadays, lenders advertise the fast pre-approval as a marketing strategy. These specific fast pre-approvals are fast but unreliable. The reason is that they are purely system-generated.
Pre-approvals should go through the full assessment process, which is more thorough and can take up to 5 days. This process is way more reliable than the system-generated pre-approvals.
Please note that nothing is guaranteed before you get the letter of approval. In that case, below are the things you should prepare when applying for home loan pre-approval:
1. Proof of Assets
Your bank and investment account statements prove you have the funds required for the down payment, cash reserves, and closing costs. The down payment is a percentage of the selling price, depending on the loan type.
If you are not putting down at least 20% of the purchase price, many loans may demand you purchase private mortgage insurance (PMI).
2. Proof of Income
Any potential buyers must provide wage statements and tax returns from the past two years. These documents include a current pay stub to show your income along with the dates and proof of additional income sources like bonuses or alimony.
3. Employment Verification
The lenders will verify your employment verification and salary by directly calling your employer. Self-employed buyers have to provide additional information, such as income stability and the financial strength of the business.
The business’s ability to continue generating and distributing sufficient income is also important, especially for enabling the borrower to pay for the home loan.
4. Good Credit Score and History
The credit score and history that you have can help lenders determine whether you qualify for a home loan or not. This information is also for deciding the interest rate that you will receive. Typically, lenders choose to reserve the lowest interest rate for customers who have good credit scores and history.
5. Other Documentation
You have to submit other personal documents and identification for the pre-approval. All these documents include the Social Security number, driver’s license, and permission to allow the lender to pull a credit report.
Can The Pre-Approval be Denied?
There are some factors to consider as the reasons for the denial of the pre-approval:
- Change in government regulations.
- Income changes or unemployment.
- Both lenders’ regulations and protocols also vary.
- Negative property valuation and assessment.
- Having children may offer the calculation of your expected expenses.
- Change in interest rate.
- Any unrevealed information about financial circumstances.
- Lender’s Mortgage Insurance or LMI guidelines might have differences from the lender’s, so they may deny your application.
Tips for Home Laon Pre Approval vs Approved
Here are four tips for anyone that may help your pre-approval into approved home loans:
1. You must be certain when applying for pre-approvals when you are ready to purchase. Usually, pre-approvals can last between 3 to 6 months.
2. Refrain from applying too many home loan pre-approvals at once. Doing this may negatively affect your credit score.
3. During the pre-approval process, don’t change jobs, get new credit cards, or have high expenses. These actions can also include tapping into your savings.
4. Make sure that you already acquired full approval before placing a bid on a property. Even many auctions will only allow you to bid after they approve your financing for the necessary amount.
Home Loan Pre Approval vs Approved: Common Mistakes
Once you are already pre-approved, it doesn’t always mean you will eventually get the final approval. Usually, pre-approval can last up to 60 days. Unless you renew it, the pre-approval will lapse after that set amount of time passes.Therefore, you must prepare and redo the process again.
Even when the property appraisal is too low, the bank will choose not to approve the loan, although you have already pre-approved. Besides, if your financial circumstances change between the pre-approval and approval period, the bank may also conclude not lending you the money.
Have You Understood Home Loan Pre Approval vs Approved?
You can boil down the difference between home loan pre approval vs approved to one word, which is verification. Pre-approval is the verification stage, while approval is the process of obtaining the home loan. Are you convinced to apply for a home loan? Do it now!
