Pre-Qualifying vs. Pre-Approved: Know the Difference or Lose the Deal

Let me just say, I think you are making a great decision.

Deals, Agents, and Lenders—Oh My!

Picture this scenario. It is one most newbies go through, and yes, I went through it myself.

You’ve racked up hours upon hours of research and knowledge by scouring Forums, reading the blogs, listening to  Podcasts, and you have learned what strategy you want to execute in order to achieve financial freedom (or simply increase passive income).

You have chosen the perfect neighborhood—with the hipster coffee shops and active night life—where you can see young, athletic couples running throughout the day.

You’ve saved enough money for a down payment and have analyzed a few dozen properties using the BP Calculators. You know “enough” to figure out what a certain property will produce in income/profit.

You’re confident and feeling ready to buy your first investment property!

Related: 7 Life-Changing Lessons I Wish I Knew as a Real Estate Newbie

After weeks of waiting and searching the MLS for that perfect investment, it finally pops up, and you call your agent.

“Hey, Mark and Kristin! I found a property. Let’s go check it out!”

A few hours later, you meet Mark and Kristin at the house, and at this time, your stomach is full of butterflies from the excitement that this could be the one! You check it out, and all looks good. You tell Mark and Kristin the magical phrase that all new investors long to say: “Let’s make an offer.”

they say, “Awesome! All I need is your pre-approval letter from your lender, and we will submit our offer!”

You give them your pre-qualifying letter that your mortgage lender has given you, because it should be “good enough” (not knowing the difference).

You make the offer, and believe it or not, it’s accepted! However, the glory is short-lived.

You have no choice but to give up the property because your loan falls through. There goes that deal.

Pre-Qualifying

Now, this is incredibly common, and it actually happened to me. You see, there is a HUGE difference between “pre-qualifying” and being “pre-approved.”

If you haven’t gone through the process of calling a mortgage lender yet, it will feel intimidating. But believe me, it is not. You call up a lender that you have been referred to or have met on Zillow, Realtor.com, Etc. (or even via your local REIC).

They will ask you basic questions such as:

• What is your credit score?
• How much is your income?
• Do you have any recurring debt?
• How much is in your bank account?
• What and how much is the property you are looking at?
• And a few other questions that you should definitely be able to answer.

In view of your reactions (which ought to be in every way obvious and precise), they will give you a statement on what you ought to have the option to get. They will draft a letter in view of the evaluated data, and this is known as your pre-qualifying credit sum.

Albeit this might appear to be something extraordinary, and for a novice it’s an immense step, you ought to likewise comprehend that this is really trying to say, “Here’s a number that really amounts to nothing and is simply intended to keep you keen on working with us.”

Pre-Approved

This is the main thing. Try not to send in your pre-qualified letter. Assuming you are not kidding and prepared to create a deal that can be acknowledged to go under agreement, you should be pre-APPROVED.

What is the distinction? A pre-approval letter is an authority quote from the lender saying they WILL credit you “X” sum for a property — though “pre-qualifying” is saying that they will perhaps advance you “X” sum assuming that all that you say has been checked and ensured.

With regards to being pre-approved, they will run a credit check (which will be a shock to you in the event that you are utilizing Credit Karma to check your FICO rating).

Each lender I have conversed with has let me know you can anticipate that a 20 should 50 point drop in your Credit Karma report when you figure out what it really is. Furthermore, indeed, this happened to me.

Additionally, they will require two years of government forms. This one can be worked around a tad on the off chance that you have a lender that will accomplish some additional work.

Alongside a credit check and expense forms they will ask for:

• Pay stubs
• Bank statements
• A photocopy of your I.D.
• Possibly your student transcripts if you are just out of college
• And a few other items that your lender will specify

The entire cycle requires a little while, however assuming you are prepared to contribute, it’s a stage that you need to take. Particularly in a hot market like we have here in South Florida., in the event that you’re not pre-endorsed, you will be pre-taken out. (That was a decent one, right?)

Progress, Progress, Progress

With regards to beginning as a novice investor, the street is indeed long and loaded up with examples, blunders, information, and prizes at each corner.

The main genuine misstep you can make isn’t making a move. Frankly, however much I have gained from Real Estate, I have learned considerably more by essentially making it happen.

Each stage will bring new snags, and every impediment holds new information and experience. It’s endless and continuously fulfilling (as long as you don’t rehash similar slip-ups). Continue making a move and continue to push ahead.