What is Mortgage Pre-Qualification?
Pre-Qualification is when a lender has evaluated your credit worthiness and has decided that you will probably be eligible for a loan up to a certain amount.
However, most of the time pre-qualification letters are an approximation based on the information you give the lender.
“The analysis is based on the information that you have provided,” says David Reiss, a professor at the Brooklyn Law School and a real estate law expert. “It may not take into account your current credit report, and it does not look past the statements you have made about your income, assets, and liabilities.”
What is Mortgage Pre-Approval?
The pre-approval, on the other hand, is a statement from a lender that says what specific amount you qualify for. To get one of these letters your lender digs a little deeper into your credit report pay stubs, bank statements, salary, assets, and obligations.
Pre-approval should mean your loan is contingent only on the appraisal of the house you choose. However, that only sticks if nothing changes in your financial picture before closing. So avoid changing jobs or buying a car before closing.
With this letter, you are truly taken seriously in the real estate market. In fact, pre-approval letters with clean contracts without a bunch of contingencies have won bidding wars against all-cash buyers.
Conclusion
While a pre-qualification can be helpful in determining how much a lender is willing to give you. The pre-approval letter is just the next more serious step into the real estate market. With this letter, you are telling sellers and real estate agents that you are serious about purchasing a home.
