As we enter the spring selling season and the last of the snow is melting away here in the Charlotte, NC. area and temperatures are rising back up to the 50's and 60's buyers are starting to come out of their hibernation and look at homes. With the rise in buyer activity comes multiple offer situations. One thing I always advise a seller to look at when in multiple offers is the pre-approval or pre-qualification letter. It can make a difference between two offers if they are close.
So, what is the difference between a pre-approval letter and a pre-qualification letter? Quite a bit actually. When you go to talk to a bank about a mortgage generally you do not know the house you want to purchase yet. You are checking to see if you can qualify for a mortgage and how much of a mortgage you can qualify for. Thus the lender will typically do a pre-qualification letter to let you go out and shop for a house with. Now, do not get me wrong; there is nothing wrong with a pre-qualification letter but it is just that...a pre-qualification. This means that the lender has taken your personal information and pulled all three credit bureaus and reviewed it with you and based on the information on there and what you have VERBALLY told that mortgage broker for income and assets is what they are basing the qualification letter on. In other words they are taking you for your word on most assets and income. Unfortunately, there are things that the mortgage broker will not ask because it is early in the process and that could actually hinder your buying power. For example, you told him you made $50,000 last year combined. However; a portion of it was a bonus which you never got before or overtime for which you do not always get.... Those usually cannot be included in your income because they are not consistent or steady.
On the other hand a pre-approval letter means that the mortgage broker has done everything that they would do with a pre-qualification but have taken it a step further. They have your w-2 for the last two years and have seen your paystubs and bank statements. They have visually verified your income and money situation as well as job through documentation. After putting that information in the computer they were able to give you a pre-approval letter.
A lot of people will tell me so what.... But the difference is your buying power is stronger with a pre-approval letter versus a pre-qualification letter. As a seller they would rather they see a pre-approval so that there is a little more verification of funds and income up front and the chances of the deal closing are greatly improved.
It does not hurt to start out with a pre-qualification letter but once you find a home you want to put an offer in on I recommend to all buyers that they contact the mortgage broker and update the approval letter from pre-qualification to a pre-approval to strengthen their offer...
Helen Adams Realty