June 24, 2010
Are you pre-approved or pre-qualified? The BIG difference.
When working with buyers to help them find the perfect property, price and financing options are often one of the first areas of discussion.
Getting pre-qualified is the initial step in the mortgage process. A lender may generally ask you a number of basic financial questions and based on that information provide you a general statement of qualification. This process is based on a general income to debt ratio and does not look at your specific financial history, credit score or review the information you have provided. You will receive a ballpark price figure, but one that is not based on your personal situation. Do not begin looking for homes with just a pre-qualification.
Getting pre-approval is much more involved. You will be asked to fill in an application, provide income verification, funds verification, account information and your credit history will be reviewed. You will also most often be able to lock into the current interest rate or the lowest rate between today and your day of purchase within a set time from (usually 90 to 120 days). You will have a solid idea of your potential mortgage amount following a pre-approval. (Note: a final mortgage is always dependent on the specific property to be purchased, so even with pre-approval you should include a financing condition in your offer to protect yourself.)
The advantage of a pre-approval is that you save time by looking at the right homes and you gain confidence in preparing an offer and avoiding disappointment by last minute loan surprises.
A final note: Once you are pre-approved, do not do anything that would affect your ability to purchase such as: being late on payments, making large purchases on credit, changing jobs (if you are in probation you will not qualify), or applying for new credit. This means no furniture shopping or planning of vacations until AFTER you take possession of your house!
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