Alex Featured on Mortgage Vault Podcast

What’s the difference between getting pre-qualified or pre-approved for a home loan?

There’s a big difference actually. We should note that every lender handles approvals differently and may use pre-qualification and pre-approval interchangeably. In this article, we will define each separately. Nonetheless, the important takeaway is the pre-qualification and pre-approval process will help give you a clearer picture of what you can realistically afford.

Pre-Approval* vs. Pre-Qualification

When you request a pre-qualification or a pre-approval from a home loan advisor, they’ll ask about your income, debt, assets, and credit.

However, only with a pre-approval will they actually verify that your statements are correct. Because the information used to attain a pre-approval is verified, it’s more reliable and sellers tend to take buyers with a pre-approval more seriously.

Here are the docs your home loan advisor usually requests before granting a pre-qualification or pre-approval:

Pre-Qualification Docs Requested

  • Stated monthly income & debts
  • Property type
  • Stated credit scores
  • Stated down payment & purchase price

Pre-Approval Docs Requested

  • Documented income & assets
  • Property type
  • Credit report
  • Down payment & purchase price

Wait, There’s More

With your approval in hand, you can start shopping for a home in your price range. However, don’t make the mistake of thinking that if you have a pre-approval you are guaranteed a home loan.

When you’re ready to proceed with your loan application, more documentation will be required.

Additional scrutiny into your full credit and financial profile are necessary to ensure that a lender feels confident in your ability to repay the loan.

If you want to start your home shopping with a guarantee that your loan will go through, consider the Certified Homebuyer Guarantee program.

Docs Requested During Underwriting

Once you’ve found a home and are ready for a home loan, your loan advisor will request additional financial documentation which may include:

  • Social security number
  • Last two years of W-2s
  • Last 30 days of pay stubs
  • Two years of employment history (dates you started/ended employment, income earned at all jobs, and the contact information for the entity)
  • If self-employed, last two years of personal, and if applicable, business tax returns, your year-to-date profit and loss statement, and any 1099s received for the last two years. If a business account exists, include the last three months of business bank statements. If a business account doesn’t exist, then an additional month of personal bank statements is required.
  • Two months of your most recent personal bank statements (both checking and savings on any accounts you want to use to qualify for the loan)
  • Any non-employment-related income received will require documentation of proof of receipt (pension, SSI, trust, disability, interest/dividend, notes receivable, etc.)
  • Last two months of statements from your retirement and brokerage investment accounts
  • A list of all your debts (student loans, car loans, credit cards, etc.)
  • If you currently own a home, a copy of your mortgage statement, property tax statement, insurance declarations page, and if you live in an HOA, the last HOA dues statement
  • The name and contact information for your homeowner’s insurance agent (if you’re not currently a homeowner, you’ll need to provide contact info for your new insurance agent during the loan application)
  • Any legal documents regarding a divorce decree, alimony, child support, bankruptcy/foreclosure/short sale or other credit-related events, and citizenship documentation for borrowers that do not have U.S. residency
  • Any other documentation that helps a lender see where your money is coming from and where it’s going

Also, keep in mind that further documentation may be needed depending on your loan or if you are self-employed.

Help Is On The Way

The home loan process can be confusing without someone by your side to answer your questions and help you through any bumps along the way.

The job of your loan advisor is to guide you through your home financing options and then walk with you through the entire process – right through closing and holding those keys in your hands.

To find a home loan advisor who is both local to you and a respected expert in their field (and who is happy to answer all your questions!), take a look here.

 

*Pre-approval is not a commitment to lend.

 Equal Housing Opportunity. Axia Home Loans is a registered tradename of Axia Financial, LLC. NMLS 27830.

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