Pre-Approval
vs Pre-Qualification – what’s the difference?
Pre-qualification is an informal
agreement between you and your lender. The bank gives
its opinion on how much they think they will be able to
lend to you based on information that you have provided
to them. Your bank doesn't do any background checks at
this point. It relies solely on you portraying an accurate
picture of your circumstances. Because this is more like
a "friendly handshake," the lender can decide
not to give you the loan if they find out later that you
have been less than candid with them. Most lenders charge
you $25-35 to obtain your credit report, but there is
no charge for the pre-qualification process. You are under
no obligation to get a mortgage with this lender, if you
find a better deal later.
Pre-approval is much more
desirable. The bank will actually check your credit history,
employment information, assets, and liabilities. The only
thing they won't check is the property that you plan to
buy, because, of course, you haven't found it yet! If
you're concerned that you might not qualify for a mortgage,
we highly recommend that you go for pre-approval. It will
put your mind at ease while you search for your new home
and make the entire experience much less worrisome. Some
lenders charge for a pre-approval. If you decide to go
with one who charges for this service, make sure you're
really going to buy a house soon or you'll just be throwing
money away.
Having a pre-approval letter gives you leverage when negotiating
a contract. The Seller perceives that approval "good
as gold". The deal will not "fall through"
because you cannot get a loan.
It also provides leverage because loan application approval
is speeded up as only an appraisal needs to be done; you
can close the sale sooner, if that is important to either
you or the Seller. |
