When it comes to Mortgage/Lenders, have you ever wondered what the difference is for Pre-Qualification vs. Pre-Approval?
When buying a home, cash is the best option, but most of us do not have hundreds of thousands of dollars lying in the bank. Of course, that's why obtaining a mortgage is one more step of your home buying process. So you know, securing mortgage pre-qualification and pre-approval documents are important steps, assuring lenders that you'll be able to afford those payments. These two documents are different even in the lenders world. Some mortgage professionals believe one document is virtually useless. Nevertheless it should be obtained.
Pre-qualification means that a lender has evaluated your creditworthiness and has decided that you probably will be eligible for a loan up to a certain amount. Here's the gist: Most often, the pre-qualification letter is an approximation - not a promise- based solely on the information you give the lender and its evaluation of your financial prospects. A pre-qualification letter is merely a financial snapshot that gives you an idea of the mortgage you might qualify for.
Now, keep in mind you may get a lower amount, this just means you have to work harder on other areas and most lender will give you a piece of paper an pen to write down what they know will help you achieve your home goals. Now on the other spectrum, it may be higher then what you thought you would qualify for. In both scenarios, just remember it helps to stay within your affordable monthly mortgage budget(payment) and don't forget to include interest, taxes and homeowners insurance.
A Pre-approval letter is the real deal, a statement from a lender that you qualify for a specific mortgage amount based on an underwriter's review of all of your financial information: credit report, taxes, pay stubs, bank statements, salary, assets and obligations.
Once you have this pre-approval in your possession via in hand or email, your now able to contact a Realtor and start walking into homes for sale. This Pre-approval means your loan is contingent only on the appraisal of the home you choose, of course, that is providing that nothing changes in your financial situation before closing on your new home.
In fact, lets just call this a reliability pre-approval letter. You pair that letter with clean purchase contracts without tons of contingencies and those have won bidding wars against purchase contracts with cash offers.
Good Luck and if you have any questions in the mortgage professional world, just give one of them a call. I have three reference lenders on my website.
Thank you for reading this and have a Fantastic Day!