Buying a home is perhaps one of the biggest purchase decisions you will ever make. But if pre-qualification agreement is something that is stopping you from applying for a home mortgage loan then this brief read will help you understand the importance of pre-qualification and how it is different from pre-approval.
First time buyers often confuse pre-qualification with pre-approval, while them being two different terms. Pre-qualification is an estimation of your qualification for a mortgage or an estimation of your affordability based on your financial situation over the past two years. It is important for buyers as it helps them narrow down their options and focus on how much amount you can afford to spend on the house you want. But it has nothing to do with the commitment between you and the lender whatsoever.
For discerning buyers, the pre-qualification comes in as an essential process that most prospective buyers are in a habit to overlook. Considering stringent lending guidelines, it is essential to know where you stand before you set your sights on a home that you just can’t afford.
Here is a list of common misconceptions first-time buyers often have about pre-qualification, and we tell you where you went wrong.
1.It’s Similar to Loan
First-time home buyers often commit a mistake of considering pre-qualifications as loans, however, they are not, “pre-qualification helps you identify the amount of mortgage for which you qualify and has nothing to do with the loan commitment, whereas, once you’re approved for a loan, that’s a commitment.”
2.You don’t need to Research the Lender
As pre-qualification enables you to decide the amount you can seek as loan, you would be able to find a lender who can put you at ease with that much of lending amount. Simply put, it enables you to identify a lender that makes your home mortgage loan an easy proposition.
3.You’re Bound to a Single Lender
Just because you took assistance of a lender in pre-qualification agreement, it doesn’t mean you are obligated to use them as final lenders. However, mostly lenders will entice you to work with them on the home mortgage loan, but by no means should you feel bounded.
4.You don’t need to Prepare
Just like it is important to prepare for a mortgage loan, it is always suggested to prepare for pre-qualification. If we go by the books, having a pre-qualification agreement before applying for a loan facilitates smooth transaction of loan, as lender will be in better position to decide the size of the mortgage you can afford. To help you a little this is what you may require:
- Proof of employment or last month’s salary slip
- Tax return from previous 2 years
- A credit report from—Experian, TansUnion and Equifax.
5.It’s OK to Lie a Little
Never! For first-time buyer even an ounce of fudging with pre-qualification agreement can risk your credibility dampening your chances of home mortgage loan. It is suggested to tell your home mortgage lenders everything they need to know, ranging from your sulking credit report to any rental property that you own.
In a nutshell, mortgage pre-qualifications is definitely a good idea not only for first-time buyers but also for every serious buyer. Having mortgage pre-qualifications agreement enable home mortgage loan lenders decide the amount of loan you can afford to pay. Last but not the least, before applying for loans, ensure that you present a true picture of your finances in pre-qualification agreement.