When it Comes to Loans – What’s the Difference Between Pre-Qualification & Pre-Approval?

When it Comes to Loans – What’s the Difference Between Pre-Qualification & Pre-Approval?

This is a very common question from people looking to buy a home (particularly first time home-buyers).  All the lender terms can be a bit overwhelming so let’s break this one down…

It’s slightly more involved than this but basically here’s how it works -- When you call a lender, they’ll ask you some basic questions about how much you make & what kind of debt you have.  You answer those questions honestly & the lender runs the numbers and says “based on what you’ve told me, we believe you are pre-qualified for X amount.”  That’s it !  You’re pre-qualified for a loan! And now that you know how much you can spend on your home, you and your Realtor (Me:) can begin the house hunt. 

Once we find a home you love, we’ll need to make an offer on it.  That’s when you go back to your lender & get pre-approved.  This means that you now have to prove that everything you said to the lender was true when you were going through the pre-qualification process.  Banks like knowing that they will get their money back before they loan somebody money.  So, they run a credit check, get your W2’s and basically verify that you will be able to pay back your loan before they hand over hundreds of thousands of dollars to you. 

That’s it!  No big deal right!?!  So  now when you begin searching for your new home, you won’t be intimidated by the lender and all the Pre-qual vs. Pre-approval jargon and you will be able to confidentially maneuver through the process!

As always, if you or someone you know is looking to buy or sell a home in Tallahassee or anywhere else– Call me at (850) 294-7058 or shoot me an e-mail at CorinneJohnston@KW.com I’d love to help you!

Do I need 20% Down to Buy a House?

REAL ESTATE MYTH:  

I need to save 20% for a down payment before I can buy a house…

I can’t tell you how many times people have said to me “I’m thinking about buying a home in the near future but I’m still saving up that 20% down payment I need to make it happen.”  Truth be told, I thought the same thing when my husband and I were looking for our first home a few years ago – of course this was prior to my becoming a Realtor.  Now I know better! 

I mean, think about it… If someone was looking to buy a home for $200,000, and they needed to have a 20% down payment, that’s $40,000 they would have to have saved up prior to buying their house! Add in the money needed to cover closing costs and you would have a lot of people who were unable to ever buy a home! The truth is you don’t need to have a 20% down payment.  Now of course this will depend on your specific loan so talk to a lender for exact numbers but generally speaking…

If you have a FHA loan you only need a minimum of 3.5% down -- So that $200,000 home you were looking at? You would only need $7,000 for your down payment!

You’d need to have slightly more on hand for a Conventional loan as they require a minimum of 5% down -- So you would need $10,000 on hand for that $200,000 home!

USDA & VA loans require absolutely no money down so if you qualify for them congratulations!  So if you are one of those people who were saving up that 20%, you may already have enough saved!  In which case, give me a call and let me help you start your house hunt!

My thanks to Brian Vincent and the fine folks over at University Lending for allowing me to pick their brains before writing this blog! 

As always, if you or someone you know is looking to buy or sell a home in Tallahassee or anywhere else– Call me at (850) 294-7058 or shoot me an e-mail at CorinneJohnston@KW.com I’d love to help you!

Cute kid pic for the week.