There is a widespread misunderstanding about what it means to qualify for a loan. This is true for all loans, but is an industry challenge for those looking to get a mortgage to buy a home or business property. Often, we see buyers make a bid based on a prequalified loan amount. Unfortunately, prequalifying is something of a loan marketing gimmick. Prequalification does not necessarily mean that your mortgage will be approved, and that can lead to awkward situations when you’ve already got a seller on the line.Verify my mortgage eligibility (Jul 5th, 2020)
So today, we’re here to helpfully highlight the real difference between a prequalified loan and a qualified loan, and what that means for your home purchase.
Prequalified Loans – Marketing, Not a Guarantee
A prequalified loan is something that banks offer people to increase their interest in a loan and likeliness to choose that bank for a future loan. It’s an offer, but it’s not a guaranteed. A prequalified loan is a lot like getting a pre-approved credit card offer in the mail. Application approval pending.
It’s true that a prequalified loan (offer) is based on real facts like your income and savings. However, the bank bases actual loan and mortgage approvals on many more factors than pre-qualification can consider. It’s not uncommon for a pre-qualified loan offer to fall through after an application is filed and examined in detail. This has been a problem for many potential homebuyers in the pastVerify my mortgage eligibility (Jul 5th, 2020)
Qualified Loans – Your Loan Application Has Been Approved
To be qualified for a loan, you must go through the application and approval process. A qualified loan has been fully approved by the bank, but you haven’t actually taken out the loan yet. To provide qualification, the bank fully vets each applicant, reviewing their finances, credit report, and circumstances before approving the loan.
Having a loan qualified instead of immediately finalized after approval is most common with mortgages, as the loan isn’t finalized until the sale negotiations are complete. Unlike a prequalified loan, a qualified loan cannot fall through at the last moment, which makes it a safer way to approach the home buying process.Verify my mortgage eligibility (Jul 5th, 2020)
Should You Act on a Pre-Qualified Loan?
So let’s say you’ve been prequalified for a loan and want to use that to bid on a house. This is a possibility, but it’s not a guarantee. It’s best to think of a loan prequalification more like an advertisement for a loan. The bank offering pre-qualification has looked at some public financial information and would like you to know that, should you need a loan, their institution is available.
If you want to use a pre-qualified loan amount to buy a house, you need to get it qualified. File an application with that bank and let them process your complete information. Rarely is the answer as good as the offer, but you’ll get a real number you can work with.Verify my mortgage eligibility (Jul 5th, 2020)
Compare Your Qualified Loan Options
It’s also important not to jump on the first pre-qualified loan offer you get. Use prequalified offers to guide your home search and buying process and gauge the local mortgage market, but make your choice based on the best terms for your plans and finances.
Explore your options for your loan. Compare interest rates and requirements. Understandably, local banks tend to have the best deals for local home buyers, as do firms that specialize in real estate loans. For each, you’ll need to go through the application and qualification process before you have an approved loan amount you can make solid bids with.Verify my mortgage eligibility (Jul 5th, 2020)
That said, choose which banks you apply to sparingly. Each is a hard credit check and can slightly lower your credit temporarily.
In order to buy a home, you first need a qualified loan to back up your bid. Prequalification can be your guide and lead you toward your future mortgage lender, but a prequalified loan is not solid enough to buy a house with. Be sure to get qualified before opening negotiations with a buyer. For more great real estate loan advice, contact us today!