Pre-qualification; what do you know about it?

What is pre-qualification?
This is to know your financial state before you search for a new home. That is, know if you have enough financing before you confront a seller. You don't have to finance your home yourself, but be assured that your banker or any mortgage institute can adequately finance the home you want.
So pre-qualification, is a discussion between a lender and a borrower [home buyer]. The borrower is expected to disclose his income/assets to the lender, and with that information, the lender would be able to give a tentative sum the borrower can borrow from the lender for home financing.

Is it pre-qualification or pre-approval?

While the two are essential one carries more importance than the other.
• Pre-qualification connotes no commitment on the part of the lender but pre-approval does carry commitment from the lender.
• Pre-qualification does not involve credit/ assets check, it is just mere disclosure while pre-approval involves thorough checking fro the lender since he has to be committed to it.
• Pre-qualification works with sellers a lot but pre-approval gives the seller an assurance that the financing is concluded.
• Pre-qualification certificate has a clause that relieved the lender of any liability but pre-approval has no such clause.
• Pre-qualification does not guarantee the buyer of lender's financing but pre-approval does

To be pre-approve you must provide your lender with income and assets documentation as well as letter of authorization to run a credit report. And other document like,
• Written loan application
• Credit Report reviewed by lender
• Verification of Income
• Pay Stubs (usually for the last month)
• Tax Returns, if self-employed
• Verification of Assets by lender
• Bank Statements
To be pre-qualified this way helps you to know your financial capability and to explore various homes within the estimated sum the lender has told you.
• You can be ascertained about the value of a home you want and to plan towards it, to explore all possible homes within that estimated price, to have a hearing with the estate broker you need to be pre-qualified.
• You also have a clear idea of what you are paying for your down-payment. This information you can get from your lender ahead of time. This affords enough time to get it.
• You can also learn about your repayment plan on time. You can find out different repayment plans you can join. You can decide to join the one convenient for you.
• Also helps you to know who to go to for lending: pre-qualification assists you to know who to go to for your mortgage finance. This is good for you because you can assess different rate of interest
• Pre-qualification helps you to find out which finance program you should join example co-mortgagor financing or special first time homebuyer programs or low down payments program or debt consolidation assistance
So get pre-qualified before you start searching for that dream home.
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