When purchasing a house, your real estate agent may suggest getting “pre-approved” or “pre-qualified” before you buy. While these mortgage terms sound similar, they are in fact very different. For a buyer, a pre-approval letter is going to be more beneficial to you in the home buying process than a pre-qualification letter, as it shows a seller you are more serious about your offer.
A mortgage pre-qualification is an initial assessment by a lender of a borrower’s ability to qualify for a mortgage loan. When you are pre-qualified, your credit report may or may not be pulled, and information about your employment, income, assets and liabilities are given by you to the lender. However, none of this information is verified by the lender, which makes it less accurate than a pre-approval (see below). In the case of a pre-qualification, the lender is reliant on the buyer to provide an accurate estimate of these items.
A pre-approval is determined after a more in-depth analysis of the borrower’s income, expenses, assets, liabilities and credit score by the lender. Generally, documentation is provided by the borrower for all of the above items so that the lender can verify all of the information that was provided verbally at the pre-qualification stage. Remember, a pre-approval is not a commitment to lend, as only an underwriter can provide that. However, a pre-approval letter lets the seller know that the information you have provided to the lender has been verified, and it appears that the borrower will be approved for the loan. In the case of a pre-approval, the seller will be more likely to take your offer seriously.
Once you become serious about purchasing a home, you should consider being pre-approved for a mortgage so that you know how much home you can afford and we can discuss your options. It is important to remember that neither a pre-approval letter nor a pre-qualification letter guarantees that you will be approved for your mortgage, but by applying for pre-approval you are one step closer.
When you are ready to purchase a home, I would love to meet with you to go over your finances and credit report, and begin your pre-approval. Let’s make your dreams of homeownership a reality!
Tags: First Time Homebuyer, Pre-Approval