So, you’re on the hunt for a new mortgage or auto loan, and you’ve come across the terms “pre-qualification” and “pre-approval.” What do they mean? Well, it’s like the difference between a casual Tinder swipe and a serious “I do” commitment. Let me explain.
But before I do, here’s a little bonus fact about severance pay, because in case you haven’t noticed…people have been getting handed a lot of severance pay these days. You never know who’s next:
A Few Words About Severance Pay
Did you know that how severance pay is taxed can vary depending on how it’s structured? In general, severance pay is considered taxable income and is subject to federal and state income taxes.
However, if your employer offers you a severance package that includes payments for unused vacation time or sick leave, those payments may be taxed differently.
Additionally, if your severance pay is spread out over several years, you may be able to reduce your overall tax liability by taking advantage of lower tax rates in future years.
It’s always a good idea to consult with a tax professional to understand how your severance pay will be taxed and how you can minimize your tax burden.
Now Back To Loans – Are You Qualified?
Getting pre-qualified for a loan is like swiping right on Tinder – it’s a quick and easy process.
You provide some basic information about your income and debts, and the lender will give you a rough estimate of how much you may be able to borrow. It’s a low-commitment way to see what’s out there.
Pre-Approved Goes One Step Farther
But if you’re ready to get serious, it’s time to get pre-approved. This is like proposing on bended knee with a diamond ring. It’s a more formal process that involves a lender reviewing your credit history, income, and other financial information to determine how much they’re willing to lend you.
You’ll need to complete a formal loan application and provide documentation to support your financial information, like you’re presenting a dossier to the CIA.
Now, pre-approval may come with a fee, but it’s worth it for the peace of mind that comes with knowing you’re serious about your financial future. Plus, you’ll have the confidence to negotiate with sellers like a boss, knowing you have the backing of a pre-approved loan.
So, in summary, pre-qualification is like swiping right on Tinder, while pre-approval is like getting down on one knee with a diamond ring. Both have their time and place, but if you’re ready to get serious, it’s time to pop the question with a pre-approved loan.
Here’s a specific breakdown of the differences between pre-approved and pre-qualified:
Pre-Approved vs Pre-Qualified – What is the Difference?
- Quick and easy process
- Provides an estimate of how much you may be able to borrow
- Typically done online or over the phone
- No cost involved
- Basic information about your income, debts, and assets is required
- Does not involve a credit check
- Not a formal commitment from the lender to lend you money
- More in-depth process
- Involves a lender reviewing your credit history, income, and other financial information
- Typically involves completing a formal loan application
- Requires documentation to support your financial information, such as tax returns and bank statements
- May come with a fee, which can vary depending on the lender and the type of loan you’re applying for
- Provides a more accurate estimate of how much you can borrow
Is a formal commitment from the lender to lend you money, pending approval of the property or vehicle you wish to purchase.
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Author: Jen Robbin