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Disclaimer: The
data relating to real estate for sale on this web site comes in part from the
Internet Data Exchange program of the RANW MLS. Real Estate listings held by
brokerage firms other than H. Strobl Realty, Inc. include the name of the
listing broker. Only listings of Brokers participating in IDX are included. 2002
REALTORS® Association of Northeast Wisconsin Multiple Listing Service. All
Rights Reserved.
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Why is being Pre-Approved so much better than being Pre-Qualified?
What’s the Difference?
Every mortgage lender can offer you a
"pre-qualification." It’s usually done on the spot and costs nothing. This can
be misleading, because just like free advice, a "pre-qualification" can be worth
just about what you paid for it. To be pre-qualified, a lender will ask you the
following questions:
· What is
your monthly income? (Gross wages and/or salary, plus any recurring overtime
pay, bonus, commissions, child support, etc.)
· What are
your recurring monthly payments? This is what you pay out every month on debts,
loans, credit cards, child support, etc. It DOES NOT include other things like
utilities, insurance, groceries, etc.
The lender will then subtract your recurring monthly payments from your monthly
income. A portion of what’s left will be used to repay your mortgage loan.
For example, a borrower and
co-borrower have combined monthly income of $7,000 per month. Their car
payments, minimum monthly credit card payments and student loans take up $1,200
a month. This borrower and co-borrower could afford:
· A monthly principal and interest payment of
$1,046. This would allow them to get a 30 year fixed rate Conventional mortgage
at 8% interest; and buy a $150,000 house with a 5% down
payment.
·
Or a monthly principal and interest payment of $991. This would allow them to
get a 30 year fixed rate FHA mortgage at 8.5% interest; and buy
a $130,000 house with a 3% down payment.
· Or a monthly principal and interest payment of
$1,514. This would allow them to get a 30 year fixed rate VA mortgage at 8.5%
interest; and buy a $193,000 house with a 0% down
payment.
But here’s the potential problem with
Pre-Qualification:
The lender issues the "pre-qualification" contingent upon
the information they were given. Once the borrower and co-borrower in our
example sign a purchase agreement, they will actually apply for financing
approval. If any of the information changes between the
pre-qualification and the actual application, the pre-qualification is null and
void … useless. Often, it can be a very honest mistake. For example, the
borrower and co-borrower incorrectly add their combined income. It’s only
$6,800 a month, not $7,000. Or, they overlook a credit card balance that
requires a $50 a month payment. Simple things, but they can derail your next
home purchase.
Get Pre-Approved!
How can you avoid these pitfalls? Insist on a
"pre-approval!" What’s the difference? Pre-approvals actually begin the
application process up front and with breakthroughs in technology, this process
can happen very quickly. There is usually a nominal charge for a pre-approval,
to cover the cost of a copy of your credit bureau report, but at Fox Cities
Mortgage Corporation, that application fee is refunded to you at closing. In a
pre-approval, the lender will also verify your income. So, knowing what you
make and what you have to pay out every month, the lender can issue with
confidence a pre-approval letter stating that you are pre-approved up to a
monthly payment of "X" in principal and interest.
A pre-approval letter from a lender is a powerful negotiating
tool for the buyer! It’s like walking into the purchase negotiations with cash.
The last thing a seller wants to do is pin his or her hopes on the buyer getting
approved for financing, just to see the whole deal fall through if the buyer
can’t get approved. This could cause a costly and inconvenient delay for the
seller of the house to move on to their next house as well! Consequently as the
potential buyer, with a pre-approval letter in hand, you could negotiate a lower
price for your dream home because the seller knows it’s like cash in hand!
Items needed for pre-approval include:
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Most recent pay stubs for each borrower
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Last 2 years W-2's per borrower
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Last 2 months of asset statements for each open account
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Last 2 years of addresses and phone numbers of landlords
Pre-approvals can speed your move as well! With the
application process already started, income verified and your credit bureau
report already a part of your file, once you sign the purchase agreement for
your home, the only things left to be done are:
-
Obtain an appraisal on the property.
-
Wait for the title work to be completed.
-
Schedule the loan closing.
Very often with a pre-approval, you can close on your home loan in just two
weeks after you’ve signed the purchase agreement! So, pre-approvals can save
you time AND money … they’re greatly preferred over just a "pre-qualification!"
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All
information deemed reliable but not guaranteed and should be independently
verified. All properties are subject to prior sale, change or withdrawal.
Neither listing broker(s) nor the owners of this site nor RANW MLS, Inc.
shall be responsible for any typographical errors, misinformation, misprints
and shall be held totally harmless. The information being provided is for
consumers' personal, non-commercial use and may not be used for any purpose
other than to identify prospective properties consumers may be interested in
purchasing.
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