A pre-qualification is your first step when exploring mortgage options. A pre-qualification is really a simple, easy process and can be done over the phone with your loan officer. During this brief conversation, you’ll be asked:
The loan officer will then take your information and using current market rates provide a general amount you may qualify for. After this conversation, your loan officer will prepare a letter stating you have spoken with a lender and are pre-qualified for a home loan.
So what’s the difference between a pre-qualification and a pre-approval? Simply put, the degree of verification. It used to be that a pre-qualification letter issued after a conversation or meeting with a loan officer was enough needed in order to start shopping for a home. Yet while a pre-qualification lets the buyers know a price range they can start shopping for, sellers want to know that your lender has not only provided you with a price range but that your income, credit and assets have been reviewed and approved by your mortgage company
When presenting an offer to buy a home, sellers want to see a pre-approval letter, not a pre-qualification letter. If there are two competing offers on a home and one offer has an accompanying pre-approval letter and the other does not, the nod will go to the offer with a pre-approval attached.
Shopping for a mortgage is less about the rate as much as it is about comparing the monthly savings on the new loan with the amount of costs associated with the new mortgage. If you can save $100 per month and your closing costs are $3,000 per month, which means it will take you 30 months to recover your investment. As long as you intend to keep the property for at least that long then a refinance can be worthwhile.