Are you pre-qualified or pre-approved for a loan?
Before you begin to shop for a new home, you should set up a time to meet with us so we can figure out how much you can afford. This will put you in a better position as a buyer. That's when it is important to understand the distinction between being pre-qualified for a loan and pre-approved for a loan. The difference between the two terms will be crucial when you decide to make an offer on a house.
To get pre-qualified for a loan, we will collect verbal information from you about your debt, income, and assets. We'll look at your credit profile and assess goals for a down payment and get an idea of different loan programs that would work for you. We will then issue you a pre-qualification letter indicating the amount you are pre-qualified to borrow.
It is important to understand that a pre-qualification letter is just an estimate of what you are eligible to borrow, not a commitment to lend. Getting pre-approved for a loan gives you competitive advantage when the time comes to bid on a home because you have been approved for a loan for a specified amount.
To get pre-approved, you will complete a mortgage application and provide us with various information verifying your employment, assets and financial status, such as W-2 forms, bank statements, and paycheck stubs. We'll review your mortgage options and submit your application to our underwriting department to find the program that best meets your needs. Once the application process is complete, you will receive a pre-approval letter indicating the amount we are willing to lend you for your home purchase.
A pre-approval letter is not binding, however; it is subject to an appraisal of the home you wish to purchase and certain other conditions. If your financial situation changes (e.g. you lose your job), interest rates rise or a specified expiration date passes, we must review your situation and recalculate your mortgage amount accordingly.
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To me a Pre Qualification letter means absolutely nothing. I don't even encourage my clients to take an offer serious if it's submitted with a Pre-Qual (unless it's a cash deal with a letter from the bank). If an offer is submitted with a Pre-Approval, I know we at least have a fighting change of getting the deal done.
I would love to know why a lender would even bother with Pre-Quals anymore? What is the value of it?
Rebecca