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| Home Buying Expert
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Home Buying 101: Pre-Qualification vs. Pre-Approval
Commentary
Brandon Cornett is one of our more popular contributors to Educated
Home Buyer. He has provided a series of articles for home buyers who
would like to know more about the home buying process.
Please be sure to check out his website for more great home buying
tips.
------------------------------------------------------------------------------
Getting pre-approved for a mortgage loan can make the entire
home buying process go smoother. But don't confuse pre-approval with
pre-qualification, as many home buyers do.
What is Pre-Qualification?
Pre-qualification is an informal look at your income vs. debt to see
how much of a mortgage loan you might qualify for. Pre-qualification
does not take your credit into account, so it does not guarantee loan
approval. It's just a quick review of your income and your debt --
the two factors that make up your debt-to-income ratio.
What is Pre-Approval?
Pre-approval means a mortgage lender has examined your credit and
income much more thoroughly. When you get pre-approved, the lender
will look at your finances as if they were approving you for an actual
loan -- in other words, in great detail. This review will give you
a good idea how much of a mortgage loan you can afford.
Here's a more formal definition of pre-approval: The process of applying
for a loan and obtaining approval for a maximum loan amount before
having a purchase agreement.
Benefits of Pre-Approval
With a pre-approval letter in hand, you can be more confident that
the lender will approve your actual loan (after you make an offer
on a home). Being pre-approved also shows sellers you're serious about,
and capable of, buying their house. This can be a factor in hot markets
where the sellers receive multiple offers.
For example, if you bid on a home along with three other prospective
buyers, but you're the only one who has been pre-approved by a lender,
then you stand the greatest chance of having your offer accepted.
The sellers will be more comfortable with you since a lender has said,
in essence, "Yes, this person is worthy of a home loan."
The buyers without pre-approval, on the other hand, would be "unknown
quantities" to the seller.
Keep in mind, however, that while a pre-approval is stronger than
a pre-qualification, it's still not a guaranteed loan. After you make
an offer on a home, the mortgage lender will once again review your
finances and credit. They'll also have the house appraised. Only when
they've approved of both you and the house will they make an actual
loan commitment.
Conclusion
Pre-qualification and pre-approval are two different things. Think
of pre-qualification as a quick review from the lender, and pre-approval
as a longer and more detailed evaluation. Pre-approval will help you
identify credit problems early on. Pre-approval also shows buyers
you're serious about buying.
Therefore, it's a good idea to get pre-approved before you start the
house-hunting process.
-----------------------------------------------------------------------------
About the author - Brandon Cornett
Brandon Cornett is the editor of HomeBuyingInstitute.com, one of the
Internet's largest and most respected libraries of home buying information
- more than 100 expert articles in 12 different home buying categories!
Put this knowledge to use by visiting http://www.HomeBuyingInstitute.com.
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