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What is the difference between a pre-qualification and a pre-approval?
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When first approaching a lender he will most likely ask you about your financial situation, past bankruptcies current employment situation, family status etc. He will also pull your credit report from the leading credit agencies. This will give him a preliminary picture of your financial ability to afford a mortgage of the size you are asking for. He can then issue a pre-qualification letter. This is almost not worth the paper it is written on. There are no guarantees attached that you will get the mortgage. It basically says that it looks like you would possibly qualify for financing with this institution. It’s better than noting but by far not as powerful a tool as getting pre-approved.
Pr-approval encompasses the full process of a mortgage application. At the end of the process your lender will state that he commits to lending you funds for a real estate purchase up to a specified amount. The loan commitment is made contingent on certain criteria, full appraisal of the home value equal or above the purchase price, availability of certain own funds, no chance in employment situation etc. Can you see how powerful this can be? A seller will see your offer as rock solid. You have done your homework and already secured financing. You do not need to put a financing contingency in your offer. You can close in a shorter period of time as you do not have to still go through loan approval. You mean business when you come to the table ! |
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