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Health & Fitness

Home Mortgage Pre-Qualification Or Pre-Approval Questions

"What is the difference between pre-qualified and pre-approved? People talk about pre-approval letters. Is the letter like a grade in college? Like getting an 'A' is better than a 'C' in history?"

Spring is right around the corner and with the warmer air comes the thought of buying a new home.  Before you begin that journey and get all caught up in the thoughts of kitchen appliance finishes, bathroom tile styles and drapery patterns, you should consider home financing issues.  After all, there's this old saying about putting carts before horses.  So before you envision decorating your new home, lets figure out how you're going to buy your new home.
 
Most people seem to believe that home financing involves some mysterious and possibly magical process which nobody can understand unless they have a Ph.D. in physics.  That really isn't the case.  Believe it or not, even some rocket scientists find the world of home financing even more challenging and dangerous than space exploration.  So, let's look at a few common questions that almost every real estate professional hears regularly.

"What is the difference between pre-qualified and pre-approved? People talk about pre-approval letters.  Is the letter like a grade in college?  Like getting an 'A' is better than a 'C' in history?"

We're talking about different kinds of letters here.  Let's talk about the difference between pre-qualified and pre-approved first.

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Pre-qualification in the world of home mortgages means that a lending professional asked you questions about your monthly income and expenses and came up with a dollar amount you could afford to pay for a home.  That's all.  You can find easy-to-use mortgage calculators on the websites of most banks.  The prequalification process does not involve a detailed examination of your credit history.  After you furnish the information and the mortgage lender verifies the accuracy of what you told them, they will issue a letter that says you are pre-qualified for a home mortgage for a certain dollar amount. 

In this case, the pre-qualification does not guarantee that the lender will actually give you the loan.  There is no committment from the lender.

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On the other hand, the pre-approval letter is a committment.  Pre-approval means that a lending professional closely examined your income and expenses including your credit history and decided that they would give you a loan and the amount of the loan.  The lender will look at your credit score from one or more of the three credit reporting agencies.  The lender will also ask more detailed questions and will verify your answers about income and expenses.

In the case of pre-approvals, the lender guarantees in writing that they will give you a loan, the total amount of the loan and the loan terms. 

If nothing in your financial situation changes after you get that letter, the mortgage lender will give you that loan. And most sellers know this because their real estate professional will explain the situation when the sellers have offers to consider.

So, you can see how a pre-approval letter in your hand will make sellers see you as a better prepared, more serious buyer. 

For a more detailed discussion, consult your neighborhood bank's mortgage professionals or send me an email.  I'm a real estate professional.  I'm not a mortgage lender, nor do I play one on T.V., but I love to discuss real estate issues.

I must insert a rather important warning here.  Please be careful of what websites you look at and what information you furnish to those sites.

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