Many times I see the terms “pre-qualified” and “pre-approved” used interchangeably when in reality they are very different terms. Pre-qualification is based on the information you submit to a lender to provide a general estimate about how much money you can borrow. This can be done over the phone or on-line and there is usually no cost involved. It’s fast – you can usually get a pre-qualification letter in a few days. This type of inquiry does NOT include an analysis of your credit report or an in-depth look at your ability to purchase a home. A pre-qualified buyer’s letter does not carry as much weight as a pre-approved buyer’s letter. Sellers are concerned a prospective buyer will be able to close the deal – a pre-approval gives them that assurance while a pre-qualification does not.
To be pre-approved, you must submit an official mortgage application, including providing the lender with all the necessary documentation to do an extensive financial check including your credit rating. After reviewing your finances the lender can pre-approve you for a mortgage up to a specific amount. You will also have a good idea of the interest rate you’ll be paying on the loan because interest is often based in part on your credit score. Some lenders do charge ab application fee for a pre-approval, You’ll receive a conditional commitment in writing for an exact loan amount. In a competitive market, this puts you way ahead of the person who only has a pre-qualification.
BENEFITS OF PRE APPROVAL
- Advance quicker over multiple bids in a competitive market.
- Take the risk out of being denied for a loan after you find the perfect home.
- Save time by doing confirmations of income and credit checks ahead of time.
- Eliminate budget uncertainty.