Getting Pre-Qualified For A Home Loan In Colorado 

What is a Pre-Qualification

A pre-qualification is basically an estimate of the amount of mortgage you can afford. You provide basic financial information to a lender, such as how much money you earn, how many debts you have and your estimated credit score. Once all necessary information is collected the lender provides an estimated amount you can borrow. This feedback helps buyers begin to understand the type of interest rates they would be offered and the estimated cost of the monthly mortgage payment.

The pre-qualification is NOT OFFICIAL because the lender has not verified any of the financial records. They haven’t pulled your credit report, reviewed your banks statements or required pay stubs to confirm your income. Many website offer free (They should always be free) and quick (sometimes in seconds) pre-qualifications for a loan, this is how they collect your information and get you on a call or email list.
​
With almost unlimited technology available online, buyers can estimate their mortgage amount with a free online mortgage calculator allowing them to determine the monthly payment for homes at different price points. This will help you avoid getting random solicitation phone calls at all hours or randomly being added to annoying email lists.

​What is a Pre-Approval

A pre-approval goes a step further; this one is more official. Home-buyers must contact a lender for pre-approval, fill out the appropriate application forms and provide the necessary documentation to verify information on the application. The final product of the process is a pre-approval letter. Buyers include this letter when bidding on homes to show they are giving a creditable offer. When buyers have pre-approval letters and the mortgage broker does the documentation verification up front (many do not), their closing processes should be much faster, because lenders already have a significant amount of the required financial records and are using them to approve the given loan sum.

For pre-approval, lenders pull your credit report and review your finances, debts and income. The resulting letter determines the official amount of loan the lender will offer. If the potential rate and loan amount seem on par with what the buyers were hoping for, that pre-approval will be valid for 60 days. If the pre-approval amount is lower than buyers were anticipating, it’s a good indication that they should wait to buy while improving credit scores, paying off debts or gaining longer-term, higher-paying employment.

Alternatively, not all lenders provide the same pre-approval amount. Just because you have a pre-approval letter from one lender does not mean you’re committed to working with that lender on a home purchase. There is not contract to sign and you are not charged for the letter.

Additionally, loan pre-approval does not guarantee loan approval once you find a home you’re ready to purchase. When a seller accepts your offer, the lender's underwriter must review further financial and home details before approving the loan. The pre-approval also does not lock your rate with that lender. Once your offer is accepted by the seller, you’ll have a window to lock a rate during the loan process.

Although these two terms are similar by name and by function, the pre-qualification is mostly for buyers’ initial affordability planning, while the pre-approval is the legitimate step that can help with negotiating and expediting the purchase process.
Buyers who get a pre-approval are telling their agent they are serious about purchasing a home. All things being equal, listing agents will confer with their sellers and give a lot more credibility to an offer that comes in with a pre-approval over a pre-qualification or no letter at all. If you are serious about buying, take the serious step forward, and ensure you are able to get the home of your dreams when the time comes.

​​(719) 629-7401
Call Today!​