Mortgage Pre-Approval vs. Pre-Qualified & What’s the Process in Kempsville 

Mortgage Pre-Approval vs. Pre-Qualified & What’s the Process in Kempsville

Some people in Kempsville say that you should get a mortgage pre-approval as the first step but how is that different than getting pre-qualified for a home loan? What is the process, and which one should I do first?

In this article we will see just what pre-approval is, how to actually get it done, the documents required and why pre-approval is necessary.

Whether you are a local first time home buyer here in Kempsville, or anywhere else in Virginia Beach, the following information will be invaluable to you.

Mortgage Pre-Approval or Pre-Qualification?

As a real estate agent here in Kempsville, Virginia Beach I get asked all the time, “What’s the difference between pre-qualification & pre-approval?” Well, being pre-approved means your requested loan amount has been agreed to in advance by your lender. This is NOT the same as a pre-qualification.

A pre-qualification does not mean anything & won’t help get the mortgage, because during the pre-qualification stage no checks have been made by the lender on your assets, income statements, bank statements, credit score & ability to pay back the loan.

A pre-qualification is basically all user provided information whereas a Pre-Approval is where the bank will verify all the data the user provided.

**A soft credit pull could be used during the Home Loan Pre-Qualification process however that does not have any affect on your credit score.**

Whereas, pre-approval involves filling out the industry standard 1003 loan application form, also called the Uniform Residential Loan Application. The Form 1003, was developed by the lending enterprise Fannie Mae. Its sibling, Freddie Mac uses the Form 65, which is the 1003 equivalent.

Generally, the 1003 form is completed twice to obtain the mortgage: once during the initial application and once at closing to confirm the terms of the loan.

The Form includes all the financial information a Kempsville mortgage lender needs to determine whether a potential borrower is worth the risk of the loan.

Pre-approval letters are crucial in the home buying process. The type of home you can buy in Virginia Beach & the mortgage you are able to take out is entirely dependent on the amount up to which you are pre-approved.

Pre-approval gives the buyer bargaining power & leverage when negotiating for property, because now the seller in Kempsville knows the buyer has a loan guaranteed.

Also, it helps shorten the closing times on a property because one of the major elements in the underwriting process (which verifies that the loan meets all the loan program guidelines) has been dealt with.

Kempsville Mortgage Pre-Approval Process - Documents Required

In Kempsville here are all the documents submitted for the 1003 relate to your income, assets & debts:

However, having the right documents does not guarantee a pre-approval for a mortgage. It also depends on your:

**We use this process in Kempsville but it will be the same anywhere else as well.**

We’ll cover debt-to-income ratio in detail in our next article but for now…

Credit Score Effect on Mortgage Pre-Approval!

Your credit report is very important and this report drives your credit score. Your credit report is a consolidation of your records of paying bills over the past 10 years. This information is used to calculate your credit score. Lenders use this to evaluate what types of terms you can get on different loans for mortgages in Kempsville.

Experian, Equifax, and Transunion are 3 big credit bureaus (go to www.annualcreditreport.com to get a free copy of your credit report). Your credit score impacts your money borrowing & financial life. e.g. the rates that you pay on mortgages, home equities & home owner's insurance.

Your credit score is used to determine what premium you pay each month for a mortgage. You might be stuck paying higher rates of interest for your mortgage, which could accumulate to thousands of extra dollars throughout the life of the mortgage, just because of a low credit score. This will affect your mortgage pre-approval in Kempsville.

The FICO scoring method (which goes from 350 to 850) is the most widely used by lenders for a mortgage. The higher the score the better. A high score would be 720 and above. A low score would be 620 and below and will affect your mortgage pre-approval.

So again, it makes a HUGE difference if you have a mortgage for the next 30 years, and paying 7% instead of 5%, just because of a low credit score, that could impact literally hundreds of thousands of dollars over the course of your lifetime.

Steps to Maximize Your Credit Score & Help Getting Pre-Approved in Kempsville

1.  Make sure you’re not late on any bills going forward.

2.  Pay off revolving debt to reduce what you owe.

3.  Once all debt is cleared up, set realistic budgets for credit for each month & don’t go over that.

4.  Make sure not to apply for unnecessary lines of credit at stores. Every time you fill out a credit application your credit score will be lowered.

5.  Run credit reports ONLY if it’s absolutely necessary (like in the case of mortgages), because the more people run your credit report the lower your score will be. Frequent loan inquiries lowers score.

Credit utilization ratio affects your credit score. Your debt-to-income ratio does NOT affect your credit score. Nevertheless, both are important to lenders when you apply for a loan & whether you get pre-approved for a mortgage in Kempsville or not.

Credit utilization ratio (sometimes called debt-to-credit ratio), means how much you are borrowing relative to how much money you have access to. The lower the credit utilization the better.

Credit utilization ratio = (Total balances on all credit cards / Total of credit limits on all cards) X 100

For example, let’s say that you have a $5,000 credit limit on your card and your current balance is $1,000. That’s a 20% utilization.

You have access to $5000 but only using part of it. That’s a good sign. It's like you have access to money but are not using a lot of it, and is deemed as reliable behavior. Whereas, having a maxed-out credit card would be deemed as very risky.

It’s important to note that your credit utilization ratio is influenced almost entirely by your revolving credit card debt. The amount of credit you’re using on other types of loans makes very little difference.

Wrapping Up Mortgage Pre-Approval Vs. Being Pre-Qualified

Equipped with this plethora of information & cleared out misconceptions, you are now one step closer to becoming a proud home owner, here in Kempsville, Virginia.

Being pre-qualified for home loan is the very first preliminary check that is done. No hard checks are done on your financial history and you just answer a few questions about your financial history and credit score.

Getting a mortgage pre-approval here in Kempsville or anywhere requires the bank to take a hard look at your finances and credit score and verify everything you told them during the pre-qualification process.