The housing market is currently experiencing a severe lack of home inventory, making it a “seller’s market.” This means there are fewer homes for sale than people looking to buy a home. If you’re home shopping, you’ve probably experienced this first hand.
In fact, according to the latest report
from the Greater Milwaukee Association of Realtors (GMAR), the seasonally adjusted inventory for May after subtracting homes that were “active with offer” is only 0.8 months. The months of home inventory is a measure of how many months it would take for the current inventory of homes on the market to sell. A market that has six months of inventory is considered to be a balanced market. So, if you feel like homes are being sold faster than you can even set up a showing, it’s not just your imagination!
Therefore, getting a preapproval, and not just a prequalification, is more important than ever in such a tight housing market!
What’s the Difference?
A prequalification or preapproval is a letter your lender provides you that states you qualify for a mortgage loan based on an overview of your financial history, including your income, assets, debts and credit history.
However, with a prequalification
, the financial information you provide to the lender is self-reported
. That means you don’t have to provide documentation of your income, assets and debts. A lender may or may not pull a credit report for a prequalification. A prequalification is a quick and easy way to find out if you qualify for a mortgage. While the lender may verbally discuss a potential loan amount with you, this will not be documented in your prequalification letter.
With a preapproval
, you must provide documentation
of your financial history — including pay stubs, bank statements, salary, assets and credit obligations — so that your lender can verify that the information you’re providing is accurate. The lender also will pull your credit report. Upon completion of the preapproval process, the lender will be able to give you a letter that specifies a loan amount you qualify for.
A preapproval letter carries more weight than a prequalification because it is confirmation from the bank that they have verified your financial information and that you qualify for a specific mortgage amount.
Preapproved Buyers Have an Advantage
Having your preapproval in hand before you go house hunting gives you a huge advantage over other buyers who don’t have a preapproval ready. If you see your perfect house, you’ll be able to write an offer immediately, whereas others may have to go through the preapproval process before they can make an offer. In today’s competitive housing market, a few hours can make the difference between getting a home and not getting it.
Realtors and sellers also will take you more seriously and view your offer more favorably if you have a preapproval letter because you’re able to demonstrate that you’ll likely be approved for a mortgage and the home will close.
Neither a prequalification or a preapproval is a guarantee of a loan. If you do put in an offer on a home and apply for a mortgage, the mortgage would still need to go through the loan commitment and full underwriting process.
What is Forte Bank’s Process?
Forte Bank prefers to issue preapproval letters to serious buyers, primarily because it’s what real estate agents have said they prefer, and preapprovals are more valuable to all parties involved.
Our preapproval letters are valid for 120 days and there is no fee. We understand that timing can be critical, so we do our best to provide preapproval letters in one business day or less after receiving your financial documents. Most of the time we don’t even need to meet with you to review your financial history. We can speak over the phone or via email and you can provide your financial documents electronically via our secure upload center
. We can easily email your preapproval letter and also send a copy to your realtor, with your approval.
Once your offer is accepted, we move you into the formal mortgage application process.
For customers who are still early in the process and not quite ready to shop for a new home in earnest, a prequalification letter is still appropriate and can be a good first step.
For more information about prequalification or preapproval, contact one of our consumer lenders today!
To find out if you’re ready to purchase a home, take our mortgage quiz.
Loans subject to credit approval.
NMLS ID 409428