Buying a home in Albuquerque brings you in contact with two terms, both related to getting a loan. Mortgage prequalification and preapproval are two methods. They may seem interchangeable, but they are actually quite different.

It's crucial for you to understand these terms so that you'll know what you can afford when looking for a home, and so that you'll demonstrate to a seller that you're serious.

Prequalification and preapproval are both steps to getting a mortgage, but if you have preapproval, you may not need a prequalification.

What is Prequalification?

Prequalification involves providing a lender with personal financial information. The goal is to help provide you an estimate of how much you can afford when you’re buying a home.

Prequalification information is usually self-reported. Your credit report is usually not verified during this process. You don't have to ding your credit report with a hard pull to get prequalified.

The prequalification letter shows you can afford the property. Having it will be helpful to your agent and sellers, but not quite as much as a preapproval.

What is Preapproval?

When it comes to buying a home, a preapproval carries a lot of weight. In order to get preapproved, you submit your finances and the lender verifies the information you provide by checking your credit report, your job and income, and your assets and liabilities.

When applying for a preapproval, you'll need details like your total monthly expenses, your W2s and pay stubs, and perhaps a copy of your mortgage statement if you own an existing home.

You receive a preapproval letter after submitting all the necessary documents. A lender will use this letter to explain how much you're approved for, along with types of loans they will give you and their terms.

Preapproval serves as an offer by the lender to you, which applies for a limited period of time. For example, you might have 90 days to buy a home based on your preapproval.

How Do You Get a Mortgage Preapproval?

To obtain a mortgage preapproval, follow these steps:

  • Get your own credit score. The higher the score, the better. A score of at least 740 is ideal for the best offers.
  • Check your credit report for errors and have any corrected.
  • Calculate your debt-to-income ratio. To buy a home, you should aim to have a ratio of 36% or less. Your DTI is a ratio of your gross monthly income that goes toward paying debt.
  • Gather the documents you’re likely to need to submit, such as your tax forms, employment details, and banking and account information. If you’re self-employed anticipate showing at least two years of income tax returns.

Finally, make sure to shop around for the best offer from lenders. This will help you find the lender that’s right for you so you increase your chances of getting approved, but also so that you can save money on interest with better terms. 

Contact us today to help you buy or sell your next home in Albuquerque. Looking for the perfect home for sale in Albuquerque? Our easy-to-use home search tool can help you start the process. Join us twice a week on our blog for more real estate advice and great reasons to buy a home in Albuquerque and the surrounding area. Follow us on Facebook for the latest Albuquerque real estate updates.

 

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